While your credit card is a useful tool in several ways, it is also an easy way to fall into a debt trap . Easy because swiping a card costs nothing and paying the minimum 5% of the bill seems manageable. But if you roll over the balance on your credit card bill for more than 2-3 months in a row, it's a sign that you are in a debt trap. Here is a four-step strategy to get you out of the situation.
1. Freeze your spending:
The first thing to do is stop spending on the card. Use cash instead, which will force you to think twice before you spend. If you don't like carrying cash around, use a debit card. But just don't use the credit card till you are out of the debt trap.
2. Convert bill into EMIs:
Call up your bank and tell them that you are finding it difficult to repay the amount and that it should be converted into EMIs. The interest rate is lower at 14-16 % than the 36-42 % payable on rolling over the balance. Banks are usually willing to do this because they see a better chance of recovering their dues. Some offer this facility even before the customer asks for it.
3. Liquidate assets:
You could also consider redeeming some investments. Even if an investment is earning you 10-1 % in a year, it will be more beneficial to liquidate it and use the money to eliminate debt that costs you 2-4% per month.
4. Start with the costliest:
If you have three of four credit cards and each charges a different rate of interest on rollover, start repaying the card with the highest interest. This way, the rollover cost will progressively get reduced.
