How to Come Out of a Credit Card Debt Trap?

While credit cards are a very helpful financial tool. Whether you are in a medical emergency or you want to go on an international holiday, credit cards are always to your rescue. However, if you take your credit card for granted, it can surely land you into a debt trap, coming out of which will prove to be a huge challenge for you.

Well, don’t panic. We are here to help you out if you have or are about to fall into a debt trap. But before we find out how you can come out of a credit card debt trap, let us first learn how you can fall into a debt trap.

What makes Users Fall into a Credit Card Debt Trap?

First things first- it is important to note that when you buy a credit card, you sign up for various terms and conditions as laid out in the official joining documents by your bank/credit card issuer. One of those conditions is that you will pay all your credit card bills by the due date as listed on your credit card statement, failing which, your bank will send you warning/notices for 6 months on a regular basis.

Even if after repeated warnings, you don’t clear your dues, your credit card account will be deactivated and reported to the credit bureaus. This will harm your credit score majorly. Hence, to avoid landing into such a situation, you must first be aware of the reasons that may land you in a credit card debt trap so that you can stay away from them.

  • Over expenditure– This is one of the most important things that you should stay away from. While there may be many situations when you need to spend an excessive amount; but it is important to first ensure whether you’d be able to repay that amount when you receive your salary or not (this would certainly be a difficult thing to do if you had spent more than you earn). Hence, you should only spend not more than 60% of your credit limit in order to be able to repay the amount later.
  • Postal delays– If you haven’t opted for online receipt of your bills, then your bank would send your bills to your residential address by post. In such cases, there is a high chance that your bills may get misplaced or get delayed in reaching you. This would eventually lead to late credit card payment. Hence, it is recommended to turn on your online notifications and to keep a regular check on your email for your credit card overdue.
  • Procrastination– A lot of people tend to wait till the last minute to pay their bills. While it makes no difference if you pay it before your due date; it is always a better idea to make the bill payments well in advance. This helps you stay away from the risk of missing on the bill payment and leaves no chance of being liable to pay heavy interest charges for late credit card payment.
  • Missed Due date– Even though it is less likely to happen, there may be a few instances where you would get confused with your due date, and eventually miss the payment of your credit card bills. Hence, it is advised that as and when you receive your monthly statement, you take a deeper look into the billing date and payment due date and set reminders accordingly.

What Happens If You Fall Into a Debt Trap?

Prevention is better than cure. This statement stands true in case of a credit card debt trap as well.

Wondering why?

The reason is that if you know about the severe consequences of falling into a credit debt trap, you would give in your best not to fall into it. Hence, before we move on to learning how you can come out of a debt trap, you must know what will happen if you fall into one.

  • Negative impact on credit score– Making late credit card payments or having missed payments lead to a lower credit score, which cancels out the major benefit that a credit card has to offer. Your credit score can be improved by effective usage of your credit card and timely repayment of your bills. It is necessary to have a good credit score in order to ensure that you are eligible for higher loans in the future. Not paying your bills in time will eventually hamper your financial health.
  • Blocked Credit Card Account– Not paying your credit card bills for a maximum of 6 months will make you a credit card defaulter. You will be blacklisted from the bank, which, in turn, will block your credit card account.
  • Legal actions– Not paying your credit card bills for a very long time will indicate that you are a fraud. As a result of this, banks might take legal action against you and it will become difficult for you to take credit from anybody in the future.
  • High interest rates– Upon non-payment of the credit card bills by more than 60 days, the credit card companies charge interest rates as high as 30% of the credit card overdue. This high interest rate is also applied on the new purchases that you’d make using your credit card. If you continue doing this, in almost no time, the interest on your credit card bill would be more than your actual credit card bill!
  • Interest on outstanding balances– Contrary to what most credit card holders think, you are not liable to pay only the minimum amount due out of your total credit card bill before the due date. Even though it is widely believed that paying only the minimum credit card balance would not make you liable for interest charges, it is not true. In reality, you will be paying interest on the outstanding amount starting from your due date. Hence, it is strictly advised that you pay your credit card overdue in full.
  • Asset Acquisition– As a result of non-payment of pending dues, banks will have the right to use funds available in your savings or other accounts to clear your outstanding balances. In worst cases, banks may also seize your properties/other assets to settle the dues.

How You Can Come out of a Credit Card Debt Trap?

To come out of a credit card debt trap, you must do the following-

  • Credit Card Balance Transfer

If you have too much unpaid balance on a credit card, you can choose to transfer your balance from one credit card to another. This will help if the other credit card has a lower or no interest rate on the unpaid amount for a predetermined time period (upto 3 months, in most cases). The credit card issuers offer this option and charge interest only after this predetermined interest-free period is over. Hence, this option is suitable only for those credit card holders who can clear their bills within the predetermined time period as offered by the other credit card issuer. Alternatively, for those who cannot repay their bills within the specified time period, some credit card issuers allow users to turn their transferred balance into EMIs.

  • Look out for alternative credit sources

If the credit card debt becomes too much for you to repay in the given time period, you can borrow credit from some other source to pay your credit card bills. You may borrow a personal loan from a bank, get a top-up home loan, or a gold loan to pull yourself out of the credit card debt trap. You may also seek to borrow a loan on a personal level. This would be helpful as the interest rate on the amount borrowed from these sources is relatively lesser and you will get additional time duration to clear off your dues.

How to Stay Away from Falling Into a Debt Trap?

Listed below are a few basic habits that you should inculcate in your financial routine in order to avoid late credit card payment and stay away from falling into a credit card debt trap-

  • Sign up for the auto-pay feature on your credit card’s mobile application/online portal
  • Set up timely reminders for your due dates
  • Pay before time- Do not wait until the last minute to pay your credit card overdue
  • If you are really short of finances, then pay at least the minimum amount due before the last date. The remaining balance can be paid in the interest-free period
  • You may take a personal loan if you have reached a stage where paying your credit card dues does not seem possible to you as these loans have lower interest rates
  • You can request your bank to convert your outstanding balance into easy, affordable EMIs, which you can pay over a specified period of time
  • As an alternate, you may also transfer your credit card balance to another bank’s account and pay the sum through regular EMIs
  • If, unfortunately, the situations have become worse for you, you may file for bankruptcy which will allow you to restructure your debt and make it more affordable for you

To Conclude:

Credit card payments can have a major impact on your financial health; hence, it must be taken very seriously. The simplest way to come out of a credit card debt trap is to not fall into it. And, if taken seriously, it is quite easy to manage a credit card and meet all your expenses without falling into a debt trap, ever. All you need to do is be careful of the important dates and make all your payments on time. Also, to be able to make full payments in time, you must not overspend on your credit card, ever.

FAQs
How to come out of a credit card debt trap?
To come out of a huge debt trap, you may either transfer your balance to another credit card and repay your bills within the prescribed time period as offered by the alternate credit card issuer. Alternatively, you may turn your dues into EMIs. You may also seek credit from another source.
What should I do to stay away from falling into a credit card debt trap?
To stay away from falling into a credit card debt trap, you must follow these practices- Sign up for the auto-pay feature on your credit card’s mobile application/online portal Set up timely reminders for your due dates Pay before time- Do not wait until the last minute to pay your credit card overdue If you are really short of finances, then pay at least the minimum amount due before the last date. The remaining balance can be paid in the interest-free period
What happens if I fall into a debt trap?
If you fall into a credit card debt trap, you will have a lower credit score, you will have to pay hefty interest charges on the unpaid amount, your credit card may be blocked or in worst cases, legal actions may be taken against you.
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