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“I have reached the maximum limit of my credit card.”
“I can’t pay off my credit card bill in full this month either. I can only pay the minimum due.”
Are you mumbling these sentences every month without fail?
If so, there is one thing you need to understand clearly.
Your current situation is not due to your poverty or low monthly income. It is due to your poor financial management.
Table of Contents
1.) Income shortage vs. Poor financial management
2.) A credit card is a Sharp Sword!
3.) Credit Card Debt – Modern slavery
4.) How to get out of the credit card Trap?
5.) How to avoid falling into Credit Card Debt again?
6.) Conclusion
1.) Income shortage vs. Poor financial management
Many people who are indebted to credit cards believe that income shortage is the reason for their situation. That is completely a wrong perspective. Even if the income is very low, people who cannot save even a small amount of it, cannot develop the habit of saving even when the income increases.
If you are in Credit Card Debt, subject your income and expenses to a self-analysis.
Do you upgrade things like cars and cell phones unnecessarily for social recognition?
Do you go to tourist destinations for mental satisfaction? Or to just post on social media?
Do you tell your friends that you have exceeded your credit card limit in a casual or slightly proud way? Or do you tell them with a bit of guilt?
When you ask yourself these kinds of questions, you will understand where you are going wrong in financial management.
In this place, Warren Buffett’s following quote is worth remembering.
“If you buy unnecessary items, you will have to sell the necessary items soon.”
Do you know what Warren Buffett said in an interview?
“He always keeps $400 in cash in his wallet. He has only one credit card issued by American Express 55 years ago. He uses his credit card very rarely and he pays all expenses in cash as much as possible.”
2.) A Credit Card is a Sharp Sword!
People with self-control hold the credit card like a sword in its handle. It is a very useful weapon for them. People who use credit cards without self-control are like people holding a sword at its sharp end. It is a weapon that hurts them.
When someone selects revolving credit on a credit card and pays only the minimum due, they pay 36% to 40% interest. Many people who pay the minimum due see it as an additional convenience, but they do not realize that it is an inescapable pit.
The bank lends money at 36% to 40% interest on credit cards, which it has collected from people at 7 or 8% interest as deposits. Credit Card Debt is the most profitable loan for banks than other loans.
In general, you have seen that the interest rates for loans such as home loans and personal loans decrease when the interest rate decreases. But have you ever heard that the interest rate for Credit Card Debt is reduced?
We must understand that Credit Card Debt with 36% – 40% interest is essentially a legalized form of “loan sharking” or extortion.
Do you know that when you are paying the minimum due in revolving credit, you are paying 36% interest on everything you buy with your credit card? Are you buying all your products by paying 36% extra interest? Is it smart?
You will spend the rest of your life trapped by paying 36% interest all the time.
3.) Credit Card Debt – Modern Slavery
It is not easy for people who are in debt on credit cards to recover. They think they are working for the family, but they are working for the development of the bank and paying the bank a
In a way, they are slaves to the bank without knowing it. The important thing is that they are in a state of brainwashing and not aware that they are slaves. In the days of kings, slaves had the awareness that they were slaves, but not today.
Some people think that having a Credit Card Debt is a kind of status symbol. But we don’t understand what ‘status’ we are referring to, because the moment we buy a credit card we are answerable to a third person. There is nothing so great about losing your freedom and being indebted to a third person which can be referred to as a ‘status symbol’.
We change something when it bothers us, but credit cards are designed in such a way that you don’t feel the debt to bother you until it’s late.
4) How to get out of the Credit Card Trap?
Even if you have many other debts such as home loans, personal loans, and gold loans, the Credit Card Debt must be paid off first. Credit Card Debt is more dangerous than other debts.
What strategies can be used to pay off Credit Card Debt?
i.) Negotiate a Lower Interest Rate
If you are willing to pay off your Credit Card Debt in full or in part, banks are often willing to significantly reduce your interest rate. The bank expects customers to initiate this conversation. Because banks have a high amount of non-performing loans in Credit Card Debt, they are prepared for this conversation.
Negotiate with your bank to see how much you can reduce the outstanding balance on your credit card. Calculate how much you will need to pay in total.
ii.) Take out a Loan with a Lower Interest Rate
To get out of the grip of Credit Card Debt with a 36% to 40% interest rate, you should consider taking out a loan with a lower interest rate. You can take out a personal loan or a jewelry loan with a lower interest rate.
These loans can be paid off by making EMI payments on time. However, if you make minimum payments on your Credit Card Debt, it will never be paid off. You will have to keep carrying the Credit Card Debt like Vikramaditya carrying the Vetala again and again.
If you are paying EMI for your home loan, you can speak to your home loan company and temporarily suspend your EMI payments. You can use that money to pay off your Credit Card Debt.
iii.) Increase your Income
If you can increase your income, you will be able to make larger payments on your Credit Card Debt. You can do this by getting a raise at your current job, getting a part-time job, or starting a side hustle.
iv.) Cut back on your Expenses
If you can cut back on your expenses, you will have more money to put towards paying off your Credit Card Debt. You can do this by cooking at home more often, canceling unnecessary subscriptions, and shopping around for better deals on your bills.
v.) Make a Budget
Creating a budget can help you track your income and expenses so you can see where you can cut back. Once you have a budget, stick to it as much as possible.
vi.) Repay from other Investments
No investment in the world will consistently generate 40% returns per year. It is not right if you are paying 40% interest, on your Credit Card Debt, on one side and your investment is generating 6% to 15% of income on the other side.
The prerequisite for investing is to be debt-free. So, people with Credit Card Debt can temporarily suspend their SIPs, PPFs, or investment insurance policies and use that money to pay off their Credit Card Debt. If necessary, they can withdraw money from those investments without hesitation to pay off their Credit Card Debt.
vii.) Get help from a Financial Planner
If you are struggling to pay off your Credit Card Debt, you can get help from a financial planner. A financial planner can help you create a debt repayment plan and negotiate with your creditors to get lower interest rates or payment plans.
By following these strategies, you can work towards paying off your Credit Card Debt.
5.) How to avoid falling into Credit Card Debt again?
i.) Credit cards – Not a substitute for Emergency Funds!
Some people ask, “I have a credit card, so why do I need separate emergency funds?” In an emergency, you may end up using your credit card and then be stuck in the loop of paying Minimum Due forever.
If you have Emergency Funds on hand, you can avoid falling into the credit card trap. Everyone should have at least six months’ worth of expenses and EMIs as Emergency Funds. You can invest this money in bank FDs or liquid mutual fund schemes. Emergency Funds will act as a great wall to protect you from the enemy of Credit Card Debt.
ii.) The 50:30:20 Rule
Allocate 50% of your income for essential needs, 30% as the maximum amount for discretionary expenses, and 20% for savings at the beginning of the month. If you have enough savings and keep your spending under 80%, you will not be affected by the incurable disease of Credit Card Debt.
iii.) Wake up to the reality of Credit Card Minimum Payments
Credit card minimum payments are often very low, making it easy to fall behind on your debt. If you only make the minimum payment, it will take you many years to pay off your balance, and you will end up paying a lot of interest.
To avoid this, you should make a point of paying off your credit card balance in full each month. This will help you to save money on interest and get out of debt faster.
6.) Conclusion
If you are going to use a credit card, it is important to use it responsibly. This means only using it for things that you can afford to pay off in full each month and also let’s wake up from the illusion that the credit card minimum due is a convenience.
In this day and age where information on handling your finances is rampant on social media. It is necessary to not blindly trust any information as it can mislead you to the path of destruction. True wealth is not just being wealthy financially but having the freedom to choose what we can do with that wealth. Let’s handle credit cards carefully and live with financial freedom.
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