How to Get Out of Credit Card Debt- Step by Step Guide

Get Out of Credit Card Debt

Credit card debt, loans for education, vehicles, or homes, bank overdrafts, personal loans, loans for business, and gold loans are all examples of debt. Your financial situation could be negatively impacted by any of them. When debt gets out of control, borrowers must endure terrible ordeals which include high interest rates, expensive fines for missing an EMI as well as harassment from loan collectors.

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People are affected by debt in more ways than simply financially. It contributes significantly to both physical and mental health issues. A long-overdue credit card debt might make one feel anxious just by thinking about it. Young people today are easily falling into debt traps since getting loans appears like such a simple, hassle-free way to get money. They don’t appear to be aware of the degree of the harm that debt accumulation may do.

Now that we are aware of the serious effects of spiralling debt, let’s try to find practical ways to escape a debt trap. In order to help you get out of debt and establish a solid financial foundation for the future, we have put up 8 ways that are guaranteed to work.

1. Accept the reality that your debt is not helping you; it is harming you.

When borrowing, debt appears to be simple, but as it is being repaid, problems continue to arise. Before borrowing, you need to make arrangements for security. After that, EMIs eat up a sizable portion of your monthly income. Additionally, if you experience an emergency and are unable to make an EMI payment, the issue quickly gets out of hand. Therefore, the first step is to make the decision that you must avoid debt. Then, you can implement and adhere to an action plan.

2. Make a list of all the debts and obligations you have.

Each debt appears small on its own, but when they are all combined, you realise how much your monthly obligations are. So, make a list of all your debts and keep careful track of them, noting the EMI amount due, the interest rates, the length of the repayment period, etc. Now that you know how much you owe each month or year, you can work with that number.

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3. Eliminate the ones with the biggest effects first.

It is referred to as the “avalanche” approach to debt reduction. Your financial situation might significantly improve only by paying off one or two of your biggest obligations. Because loans with higher interest rates put more strain on your finances, especially if you have a history of default. And remember that using another credit card to pay off one credit card debt is not the solution! Reduce the amount of times you eat out, put off some discretionary spending, put off that trip you had planned or that pricey buy you had in mind. Use simple but powerful actions.

4. Keep an eye on your credit worthiness on a frequent basis; it's not just a one-time practice.

Once every three months, generate your credit score to see if it is rising. A score above 800 is the desired level, and it should continue to rise. So, even after two or three quarters of sound financial management, you won’t relapse.

5. Replace your financial instruments with different ones.

Chit Funds are a great substitute for debt instruments. Consider investing in a chit scheme with a 2- to 3-year term. Based on the monthly payment instalment and your financial objectives, pick the prize amount that best suits your budget. You can just withdraw the entire amount of the chit reward money whenever you need money. You only need to carry on paying your regular monthly payments; there are no new obligations that result from your early withdrawal of funds. On the other hand, you can expect to receive a very nice return on your investment of between 10%-15% if you make it to the end of the term without withdrawing any money.

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6. Think about debt consolidation:

Consider consolidating your debt under a single personal loan rather than paying off many loans with various interest rates. This is a choice where you combine various loans into one. This can make your life easier and help you escape a debt trap.

7. Create an emergency fund.

Saving money is a good habit. While saving money is crucial, you should also set up a separate fund for unexpected needs. For instance, you’ll need money to support yourself if you have a medical emergency and are unable to work for several months. You can easily control your spending if you have an emergency reserve. You can get through challenging times without resorting to borrowing money if you have an emergency fund.

You can read: Best Apps For Saving Money

8. Raise your income.

We are frequently conditioned to think that our job is the sole source of all of our income. But more and more people are developing an entrepreneurial mindset through side jobs and diversifying their income. Make a list of all your skills and search for platforms for possible opportunities as a good place to start. People with abilities like accounting, writing, editing, online education, and design, to mention a few, can work online and earn money. Another option is to think about making a business out of a hobby. If you bake, knit, or construct things, for example, you may sell them and increase both your income and your sense of identity. Naturally, you must pay off your debt with every rupee that comes in.

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How To Avoid Credit Card Debt

Credit card debt drains your hard-earned money into high interest payments like a black hole. In the end, you end up paying back much more than you initially borrowed. We all know this, especially those who use their credit cards frequently.  However, many continue to practise this habit because of the allure of readily available, unconditional money. The publicly available statistics on credit card debt are extremely concerning, especially given that younger people (those under the age of 30) appear to be the most in debt.

Credit card debt is capable of damaging a person’s mental serenity and financial stability, especially the youth, unless borrowers take prompt remedial action to get out of this issue.

You must take a few easy but crucial steps that we have outlined in order to get yourself out of this credit card debt crisis.

2. Adhere to these credit card best practices.

Make a regular payment from your savings account to your credit card in order to have the bill amount automatically paid each month by the balance due date. You will win half the battle if you make your EMI payments on schedule and pay off your entire sum each month. On your credit card, avoid cash advances. Never, ever use more than one credit card. Replace the credit card in your wallet with the bank debit card consciously. Just keep in mind that responsible credit card use is not the only option. It’s important to get rid of it.

Related: 6 Ways to Buy Mobile on EMI Without Credit Card

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3. Change to mobile payments based on UPI. They offer much greater convenience.

Many people who use credit cards swear by the convenience that using them offers over cash payments. Mobile wallets powered by UPI give you the same, if not greater, convenience. You can only spend money that is actually in your account when using UPI-based payments, which is the first benefit. This means that it is not at all a credit instrument, but like an interest-free debit card. When your bank account is low, you will naturally start to limit your purchases. In contrast, using a credit card is like going down a dark alley since you can’t see where your money is going when you spend it.

4. One of the largest risks is unexpected emergency spending.

You can reduce your spending on eat-out, extra clothing, and other luxuries. No issue. What can you do, though, to prevent unplanned medical or family emergencies? Nothing. Every person’s life is inevitably going to include these. Setting aside a reserve fund is the greatest method to be ready for such situations. These can be invested in assets with quick liquidity, such debt mutual funds and chit funds. These securities offer easy withdrawal capabilities in addition to acceptable, secure returns.

Unwise use of credit cards can lead to serious consequences. Chit funds are a type of financial instrument that might be a good substitute for many of your financial requirements. Chit funds may sound very different from other types of financial instruments. However, chit funds can assist you in a number of ways in breaking free from the credit card debt cycle. Here’s a brief summary:

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Chit funds are intended to serve two purposes as a financial tool. They are a simple way to borrow money as well as save it. You can invest your extra income into a suitable chit fund programme for a tenure of two to three years in order to cover known expenses that you are expected to incur in the near to medium term. Your money is therefore available for use when the time comes for the actual expense! No interest, no debt. If in the mean-time, you are faced with a financial emergency, the chit fund gives you a quick liquidity option to tide over the crisis.

In a chit fund scheme, your monthly contributions would still cover the principal and interest even if you drew the entire sum out early. By the end of the term, you will be debt-free.

Former IIT, INSEAD, and UCLA alumni launched The Money Club, an AI-driven online chit fund platform, with the goal of enabling 1 million people to join Money Clubs with other like-minded individuals to Save, Invest, or Borrow money. This AI-driven chit fund platform has revolutionised the way chit funds are managed in India with the use of cutting-edge technology. The Money Club App uses technology to create trustworthy networks across India so that people may save more, borrow money at cheap interest rates, and invest money wisely. Money Club is an effective investing strategy to increase your savings, with an average ROI of 25% every year. Since its establishment, more than 50,000 groups or clubs have been formed, and more than 3 lakh people have registered with it.

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