Credit card debts were always a sore point for consumers even before the pandemic. With the economic devastation caused by the ongoing pandemic, millions of consumers are drowning in credit card debt.
Outstanding credit card bills have escalated during the crisis as consumers swipe their cards to handle medical emergencies. While credit card debt is just one piece of the overall debt pie, it’s the most vicious due to the high-interest rates. Additionally, pending credit card bills can hurt your credit score. So, you must manage your credit card debts on priority and get them back on track.
10 Step Guide to Getting Free from Credit Card Debts in 2021
Step 1: Review, Tally Up, and Analyse
The first step to tackling any debt is to – “know how much you owe, to whom you owe and where you are with the payments.”
Here are a few pointers to help you out:
● Compile all your latest credit card statements.
● Check if any item looks suspicious – keep an eye out for thefts, mistakes, etc.
● Scrutinize your spending patterns – see where you are spending, how much you are spending on average.
● It’s also a good idea to download your latest credit report and see how many late payments have been reported.
Understanding your spending patterns and debts will give you a clear picture of the money coming in and going out. This will help you cut back on frivolous expenses, be prudent and save.
Step 2: Use a Spreadsheet to Plan your Budget
It’s time to roll up your sleeves and start tackling your budget. Track your income and expenses for a month. Organize the data on a spreadsheet. Distinguish your wants from your needs.
● Needs are the essential expenses like house rent, loan EMIs, insurance premiums, utility bills, basic food and grocery, etc.
● Wants are things that you spend extra on – OTP subscriptions, ordering out, splurging at a mall, etc.
Track your spending on essentials and non-essentials. Try to cut back on non-essential spending and use the extra money to pay off outstanding credit card bills. Keep the spreadsheet on Google Drive or other cloud software so that you can always note down every single expense.
Step 3: Start Building an Emergency Fund
This is a continuation of the previous step. While budgeting, see that you set aside a percentage of your income for an emergency fund. The emergency fund is the amount you save for a rainy day. It acts as your financial net for when things don’t go according to plan.
With the pandemic still raging on, there’s still financial uncertainty all around us. The situation is predicted to remain uncertain for the rest of 2021. Having an emergency fund helps you avoid adding more debts during a financial emergency. So, if you haven’t started building your nest egg, it’s time to get started ASAP.
Step 4: Talk with your Credit Card Company
Thanks to the various relief measures announced by the RBI, like Restructuring 2.0, it has become a bit easier to get free from your credit card debt. Check with your credit card company to see if they can work out a repayment plan that suits you.
Let the credit card company know that you’re having difficulties paying off your bill. They might agree to lower your interest or even waive off the penalty fees. It never hurts to ask.
Step 5: Investigate Debt Relief Options
Once you’ve taken stock of your debt situation, the next step is to seek debt relief. Services like CreditMantri offer CIS (Credit Improvement Services), where they negotiate with the lender on your behalf to work out a repayment plan that best fits your budget.
Keep in mind that while debt settlement may seem like a great way to get rid of your ongoing debts for a fraction of what you owe, the consequences can be long-lasting. When you settle a debt, it leaves a negative mark on your credit report, and your credit score takes a hit. So, keep debt settlement as the last option, only when you have exhausted all other choices.
Step 6: Consider Debt Consolidation Loans/Credit Card Refinancing Loans
The main reason why credit card debts are so difficult to pay off is that they charge steep interests. Look for debt consolidation or refinancing loans that come at lower interest rates. Shop around, see if you’re eligible for debt consolidation loans and see if you can consolidate all your credit card bills into a single loan that is easier to manage.
Step 7: Set a Deadline
Work out how long it will take to pay off outstanding credit card dues. Having a deadline makes you more committed to the goal. Update the deadline based on how fast you pay off debts.
Staying motivated and on track while paying off debts is hard. This is why having a tangible deadline helps as it helps you stay focused.
Step 8: Prioritize which Credit Card to Pay Off First
If you have multiple credit cards with outstanding balances, you need to prioritize which card to pay off first. There are two ways to approach this step:
● Pay off cards with the highest interests first.
● Alternatively, you can also pay off small balances first – as this gives you the confidence to tackle bigger debts later on.
Step 9: Avoid using your Credit Cards till You Settle Pending Bills
This step is a must to avoid adding additional debts. If you have to use your credit cards for essentials like fuel and grocery, use only one card and keep the rest away till you clear all pending bills.
Step 10: Get the Help of a Friend/Family Member
Tackling credit card debts – especially when you have a large amount of debt – can be emotionally taxing. It’s normal to feel stressed and overwhelmed. You don’t have to go through it alone. Get the help of a friend or family member to motivate and encourage you. Ideally, this person should have the financial knowledge to guide you and ensure that you stay on track.
Be Kind on Yourself
2020 was indeed a challenging year. We had to go through a pandemic, subsequent lockdowns, job uncertainties, illness, loss of loved ones and more. There were plenty of things beyond our control. Even those who were cautious about their credit card usage fell into the credit card trap due to the uncontrollable situation.
You may be feeling guilt, uncertainty, and other negative emotions. But, keep in mind that you are not alone and be kind to yourself. The fact that you realize that your credit card debt needs action is a good starting point. It shows that you care and are ready to take action.
When dealing with high-interest rate debts like credit card bills, it may feel like you’re stuck in a sinkhole with no way out. But, no worries, you can get out of the hole by taking the right action. Even if your debt is insurmountable, having a clear and well-planned strategy can free you off your debts. Use the steps listed here to strategize your debt action plan, and ease yourself of credit card debt in 2021.
In this post, we’ve collected the best steps to free yourself from credit card debt in 2021 and beyond. Use this guide to reduce your debt burden and get back on track.
