Strategy To Clear Credit Card Debt
Many people struggle to clear credit card debt not because they were not able to but, because of lack of knowledge about minimum payment and interest rates on credit card bill.
If you can put 15-20 min of your time on below mentioned steps, you can easily get out of your credit card debt.
Steps to clear credit card debt:
- Step 1: List all your credit cards
- Step 2: Check penalties & interest rates for each credit card
- Step 3: Arrange your credit card in the order from higher interest rate to lower
- Step 4: Pay more than minimum amount
- Step 5: Re-order and repeat the same process
List all your credit cards:
First thing is, take out all your credit cards irrespective of your regular usage. You may have 2 credit cards or 10 credit cards. Take out all.
Check penalties & interest rates for each credit card:
If you fail to pay your full credit card bill amount, bank will impose you some penalties in terms of fine(s) and interest rates. Find out how much does it charge?
You can find interest charges & penalties information on your each month credit card bill, or in the booklet you received along with your credit card from the bank. If you can’t find interest charges details from these 2 sources, make a call to call center and find out the details.
Find the interest charges and penalties for each credit card and make a note of it.
Arrange you credit card in the order from higher interest rate to lower:
By this stage, you must have all the details of your credit card penalties or interest information details. Arrange all your credit cards from higher penalties to lower.
Let’s say you have due amount of rupees 1000 on your credit card
Credit Card from Bank X may penalize you 15 rupees (including interest amount, service tax, etc…)
Credit Card from Bank Y may penalize you 25 rupees (including interest amount, service tax, etc…)
Credit Card from Bank Z may penalize you 10 rupees (including interest amount, service tax, etc…)
Arrangement will be like,
Credit Card Y will be first in the list
Credit Card bank X will be second in the list
Credit Card Z will be third in the list
Pay more than the minimum amount
Try to pay at least minimum amount mentioned in your credit card bill for all the credit cards.
If you don’t have enough to pay, give highest priority to the one listed first in the arranged list.
Let’s say you have only rupees 300. But, minimum amount for
Credit card Y is rupees 250
Credit card X is rupees 100
Credit card bank Z is rupees 300
What will you do now?
Use rupees 250 to pay credit card Y bill since penalties are very high, and use balance rupees 50 to pay credit X.
Let’s say you have enough money to pay the minimum amount of all the credit cards you have. And, you also have some extra cash.
Now, pay the minimum amount of all the credit cards, and use your extra cash to pay the first credit card in the arranged list i.e the one which penalize you with higher interest rate.
Try to pay as much as you can till you reach the full due amount.
Once you finish one credit card debt, re-order rest of the credit card(s) and repeat the same process from step 1
Once you are able to pay the full due amount of higher interest credit card or, you are done with one credit card, repeat the same process from step 2 mentioned above till you clear all your credit card debt.
Keynotes to remember
- There may be different interest rate charges based on your minimum amount payment. If you pay at least minimum amount, bank may charge some X% interest. And the same bank may charge you some X+Y% if you don’t even pay minimum amount.
- Some banks allow cash back offers against the credit card reward points. Check with your bank. If they do so, convert your reward points to cash to pay your credit card bill.
You may be interested in reading: