From Diwali Delight to Credit Card Regret: A Guide to Damage Control

Nov 29, 2023 / Reading Time: Approx. 6 mins

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From Diwali Delight to Credit Card Regret: A Guide to Damage Control

It is the favourite time of the year for all of us as we have been enjoying the festive season with our friends and family, celebrating occasions like Ganesh Chaturthi, Durga Puja, and Dussehra leading up to Diwali.

The festive season has brought with it irresistible discounts and attractive offers that entice us to make purchases that might be financially challenging to afford under normal circumstances. Many of us eagerly anticipated the festive season to time our significant purchases, taking advantage of the maximum discounts and loan options offered by banks, Non-Banking Financial Companies (NBFCs), and credit cards.

However, it is possible that in the pursuit of limited-time discounts and offers, many of us exceeded our budget and ended up overspending on our credit cards. This article aims to provide insights into how you can reduce the credit card debt created during the festive season.

Engaging in impulsive spending through credit cards can lead to a debt trap. It is crucial to maintain financial discipline and exercise control over your credit expenditures to steer clear of such a situation. Nevertheless, if you find yourself having shopped with your credit card beyond your repayment capacity during this Diwali sale, here are some tips to ease your financial burden.

1. Utilise Your Reward Points:

Most credit cards provide reward points or cash-back on purchases. If you have been using your credit card for a while, chances are you have accumulated some reward points. Instead of using them for additional shopping, consider converting them into cash, which will appear as a credit on your next credit card statement. This approach allows you to reduce a portion of your outstanding balance. Keep in mind that if you have recently started using the card, there may be a waiting period, typically a month or two, before you can redeem your reward points based on the credit card's terms and conditions.

2. Transform Purchases into EMIs:

One of the primary advantages of having a credit card is its flexible repayment options. You can convert a high-value transaction or your entire bill amount into Equated Monthly Instalments (EMIs). This allows you to spread the payment over time, making it more manageable. However, be aware that the interest rate on credit card EMIs is often high, ranging from 12% p.a. to 30% p.a., depending on the card's terms and conditions. Furthermore, there may be a small processing fee, and failing to make timely EMI payments can result in high late payment fees. This can also impact your credit score.

3. Explore Balance Transfer:

If you have multiple credit cards, the credit card balance transfer feature can provide a few extra days before repayment is due. You can transfer your credit card dues to another card with a balance transfer facility. You can either repay the transferred balance in full before the due date or convert it into EMIs. Before opting for a balance transfer, compare the interest rates and processing fees of all your credit cards to choose the one with the best EMI option. Repaying as much as possible before the transfer can reduce future financial burdens.

4. Consider Debt Consolidation:

When faced with multiple smaller dues that are challenging to repay, taking a 'personal loan for debt consolidation' or a secured loan like a 'loan against property' makes sense. This type of loan combines multiple dues into a single EMI, typically at a lower interest rate. While it offers a longer loan tenure to reduce monthly expenses, it is advisable to repay the debt consolidation loan as early as possible, as the interest rates on personal loans are typically higher.

5. Leverage Investments or Loan Against Investments:

If you have investments providing average returns, consider liquidating them to repay debts. Alternatively, if your investments yield higher returns, opt for a loan against them. These loans, including those against shares, mutual funds, fixed deposits, or a life insurance policy, often have lower interest rates as they are secured loans. Keep in mind that the lender may liquidate your investments if you consistently delay EMIs or fail to repay the loan.

6. Tap into Emergency Funds:

While financial experts typically discourage using emergency funds to repay credit card dues, it may be considered if you have surplus funds that won't be immediately needed. However, before tapping into your emergency funds, ensure that you can replenish the emergency funds promptly. If there is a possibility of needing these funds in the near future or if redepositing them might be delayed, it is wise to refrain from using them.

7. Seek Assistance from Family and Friends:

Borrowing money from family and friends can provide instant financial relief without incurring high interest. Repaying such borrowed funds before the agreed-upon date is advisable to maintain a healthy relationship. Besides, if someone is unable to help you at the moment, understand that circumstances vary and do not take it personally.

8. Explore Fintech Solutions:

Several fintech companies in India now provide small loans through mobile applications. These app-based loans have become increasingly popular, particularly among millennials and Gen Z, due to their quick and convenient application process. However, it is not recommended to use app-based loans to settle your credit card dues. The interest rates and late payment fees associated with these loans are significantly higher than those associated with credit cards. Despite their ease of accessibility with just a few taps on your mobile screen, succumbing to the allure of these loans through excessive borrowing via fintech apps can lead to falling into a debt trap without realising it.

9. Utilise Extra Income:

If you find yourself in a situation where you have incurred significant debt and are uncertain about the affordability of your EMIs, it is advisable to utilise any additional income you receive to repay your debts. This can include setting aside bonuses, dividend income, earnings from hobbies or side hustles, rental income, and other supplementary sources of income. Furthermore, if your spouse is a homemaker, consider discussing potential income opportunities for both of you to share the financial responsibilities.

10. Seek Professional Guidance:

In the event of substantial debt, when conventional solutions prove ineffective, it is recommended to seek assistance from financial experts or consultants. They can provide guidance to help you escape the debt trap as soon as possible. If hiring a financial consultant is financially challenging, consider reaching out to experts at your bank. Many individuals are reluctant to seek professional help for debt management, fearing judgment from consultants. However, in reality, these professionals function much like financial doctors, dedicated to resolving your issues without passing judgment, provided you provide them with accurate and transparent information.

In conclusion:

Carefully consider the above tips to reduce your credit card repayment burden and choose those that align with your situation. Achieving an immediate debt-free status may be challenging if you have exceeded your budget. However, practising financial discipline and avoiding additional debts will contribute to a speedier recovery from the situation.

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KETKI JADHAV is a Content Writer at PersonalFN since August 2021. She is an MBA (Finance) and has over seven years of experience in Retail Banking. Ketki specialises in covering articles around banking, insurance, personal finance, and mutual funds and has been doing it for over three years now.

Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.
This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision in the above-mentioned schemes.

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