Everyone is bound to become a debtor at some point in their life. But there is a difference between ‘good debt’ and ‘bad debt’. Good debts allow you to acquire assets that appreciate in value, like property, houses, land, etc. Bad debts only choke your cash flow and result in a bad credit score. ‘Credit card dues are bad debts’.
There are a few reasons why you should avoid credit card debt at all costs;
- Double digit interest rate: Credit cards come with very high interest rates. When you miss a payment, you are charged a steep interest rate on your total outstanding. So it is prudent to settle your credit card bills in full and on time, if you don't want to be charged high interest rates.
- You may be prolonging the time taken to clear your dues: By not paying your credit card dues on time, you may be incurring very high interest charges that will manifold your total outstanding amount. This may take you a very long time to settle completely. Once you fall into the credit card debt trap, it becomes difficult to get free of it.
- Affects your credit score adversely: Your credit card payments are an important component of your credit report. Defaulting on your credit card payments will have a severe effect on your credit score.
How can I avoid credit card debt?
Though credit cards are a very convenient form of debt, it is very expensive. You can follow a few simple measures to keep your credit card debt in check:
- Use it sparsely: Use your credit card only for completely essential expenses. Do not splurge on luxuries and items that you cannot afford with your income.
- Use it in proportion to your income: Make sure that your credit card purchases are affordable to you. You can be debt free when you are able to clear your credit card dues every month.
- Choose short term loans over credit cards whenever possible: You should leverage short term loans for big expenses like medical emergencies, vacations or marriage. These short term loans will get you better interest rates and repayment terms compared to your credit card.
- Follow a strict repayment plan: Total discipline is essential towards your credit card repayments to ensure that you don’t get yourself entangled in a huge credit card debt. Chalk out a clear plan and stick to it at any cost.
Seek credit card settlement options when you feel that you are too deep in the debt.
Be assured that nonpayment of credit card dues is not a criminal offense and you will not be jailed for it.
Opt for secure credit cards that are backed by your FDs for better debt management.