With a credit card in hand, cardholders gain the power of increased purchasing power. But this advantage comes with the risk of getting into debt. Despite using a credit card in a smart and cautious way, one can still end up with credit card debt due to a variety of reasons. Overwhelming medical expenses, other types of unavoidable emergency expenses, and defaulting on payment of credit card dues are some factors that can lead to credit card debt. But there is still hope for people who have such debts. Here are some useful tips that can help a person pay off their debt.
1. Convert outstanding credit card dues into EMIs
A wise way to pay off credit card debt is to convert the outstanding dues to EMIs. Many credit card companies allow a certain amount of transactions beyond a threshold limit to be converted to EMIs. The interest rate of EMIs is comparatively lower than paying interest on unpaid dues. This step can help in reducing the overall interest to be paid. Additionally, the tenure of EMIs is also flexible, which enables cardholders to choose a comfortable time period to repay their credit card debt based on their inflow of cash.
2. Take advantage of long-term investments
Financial experts advise that one should use long-term financial investments as a way to avail loans since the interest rate for such loans is quite low. If one has a long-term investment, they can check if they can get a loan against it at low interest rates. These funds can be used to repay the credit card debt without affecting any long-term financial goals. Many times, cardholders choose to redeem their long-term investments to pay their debt, but experts strongly advise against it. This will not only be an obstacle in realizing long-term financial goals but might also force the cardholder to take out expensive loans in the future.
3. Credit card balance transfer
Another effective tip for overcoming credit card debt is transferring the outstanding dues of a credit card to a new or existing credit card at a lower rate of interest. This option can be especially useful for situations where the card issuers refuse to convert the outstanding dues to EMIs or charge a higher interest rate on it. Generally, credit card companies offer a promotional interest period for a balance transfer, where the interest rate is pretty low. This gives the cardholder some time to arrange for funds and pay off the outstanding dues.
4. Liquidate low yield investments
The interest rate on fixed income products like debt funds, bank deposits, and bonds is comparatively lower than that of outstanding dues on credit cards. So, a person who has credit card debt can save more money if they redeem their low yield investments to pay the credit card dues. At the same time, it is advisable that instead of using any investments or savings as emergency funds or for other short term financial goals, one should avail of fresh loans or opt for a balance transfer at low interest rates.