It’s simple, like what you see in the store, add it to your cart and enter the CVV of your credit card. The entire process won’t take you more than a few minutes. Hold on, you repeated this far too many times and now you seem to have reached the maximum limit on your credit card? No problem, convert the repayment into easy instalment monthly repayment. 

The amount gets broken down into smaller bits, but do you know that for the amount that remains unpaid you are likely to be paying interest at an annual rate of anywhere between 36%-40%? Scroll lower on your credit card statement and you will find all the details there.

It won’t have this alarming figure mentioned above, rather, what you will see is the monthly interest rate of 3%-3.5%. On Rs 50,000 outstanding, monthly interest of 3% works out to an excess payment of Rs 1500 every month over and above the repayment instalment that’s due.

Ask yourself if you really want to pay the credit card company that much more? And can you afford to?

If not then be smart and start working on reducing that outstanding debt in a systematic manner. 

Step 1

The first step to reducing your credit card debt is cutting down on your expenses. There is no easy way to speed the process up. You have to take stock of your monthly expenses, there are non-negotiable expenses like utility bills and grocery bills which you have to take care of, but look at ways of reducing excesses.

Trim down the expensive jars of peanut butter and chocolate sauce or ensure more efficient use of air conditioning to reduce your electricity bill. You will be able to get a few thousand rupees every month, just by doing this.

For the other discretionary spends like eating out or shopping, you have to garner a lot of will power and just put the brakes on. Stop these spends for the period in which you are trying to maximise debt repayment. The extra money you save in the month will help you repay that credit card debt faster. 

Step 2

Once the repayment is on schedule speak to your credit card issuer to lower the interest charge. This can be negotiated between the credit card user and the issuer. If the issuer is your home bank, then you can speak to them to ease out the interest with an eye on continued use of the facility. Effective communication can help you manage the interest burden.

It’s only when you have overused the card and the bill you get is beyond your monthly salary and repayment ability that you realise the enormity of the problem. 

Step 3

Re-organise how you use the credit card. Once you own a credit card, its easy to swipe it every where without the guilt of overspending because it doesn’t impact your immediate cash flows. You swipe your card at the super market, then at the clothes store or for online purchases all in one day but your bank balance doesn’t change or fall. It gives you a false sense of affordability. It’s only when you have overused the card and the bill you get is beyond your monthly salary and repayment ability that you realise the enormity of the problem. 

The way to overcome this temptation is to have a structure. Use your credit card only to buy what you want and not what you need. Keep your necessary expenses going out of your bank account so that you have a clear idea of what you can afford when it comes to your everyday lifestyle.

The extras or the wants can be put on the card, this way you know you will be spending a lot less on your credit card. Secondly, ensure that your monthly credit card spend is not more than 15% of your allowed maximum limit. 

Follow these steps to repay your debt and ensure you don’t fall in that trap again. Credit cards give you some extra liquidity and stretch your money in the month, but make sure you understand that whatever you spend on the card is a debt and if you don’t repay on time, you will have to pay interest and a heavy one too.