How to Come Out of a Credit Card Debt Trap?

Falling into a debt trap can drop your credit score further getting difficult to avail loans and more credit cards in future. One is unable to get out once trapped but certainly looks forward to taking some steps to get out of this debt. Following these measures can tell you how to come out of a credit card debt trap.

Credit card balance transfer

This is a feasible option for multiple credit cards user where he can transfer the outstanding balance to another credit card or apply for a loan to pay credit card debts. One can also consider procuring a credit card or avail an add-on on the existing. In the case of a new card procurement, one gets enough time to enjoy interest-free credit or at lower rates. Thus, this period generally ranging from 3- 6 months can be used by the cardholder to pay off the debts.

Numerous credit card providers also offer you an option to pay the balance transferred on monthly instalments also known as EMIs. This choice reduces your burden on the debt. However, make sure that you are aware of the interest charges, promotion period duration, processing fee, etc.

New loans at lesser rate of interest

One can raise a new loan to pay off the old debt. One option is to take personal loan for credit card bills payment. The interest on personal loans, gold loans, or loans against fixed deposits is comparatively lower than the interest rates charged by the credit cards. For instance, while the rates charged by credit cards range from 25 – 30%, personal loans are offers at 12 – 25%. However, it is tough to obtain a loan due to low credit scores and traps.

Convert your debt into an EMI

Instead of transferring your credit to another card, customers can convert the balance into EMIs payable in a 3 – 12 month period. The interest for the same is generally 18%. However, a processing fee of about 1.5 – 3 % might be charged for the outstanding balance on EMI. In case the credit card debt isn't paid on time, standard credit card interest rates will apply.

Redemption on investments

One should choose this option only if the investment doesn't possess a high opportunity cost. For example, fixed deposit accounts can be closed for repaying the debts. It is an ideal option only if interest rates are not over 9% because it is lower than the interest rate applicable on loans you take

Redeeming equity mutual funds is another option. But it may likewise beget a high opportunity cost, especially in a bullish market period. While these investments might fetch you even more than 20%, availing loans shall be a better option.

Final words

Despite a number of benefits, credit cards have become a primary reason for debts today. Customers need to be careful while availing the benefits that their credit shouldn't exceed their monthly capacity. Customers can control their credit card debts by making sure that they avail another credit only when the first one is repaid. Also, customers should keep themselves updated with their credit reports to make decisions accordingly.

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