Is your credit card getting the better of you?

The power of plastic money remains until you make the full payment of your outstanding within your payment cycle. The fact remains is that most people tend to go overboard when it comes to spending money swiping their credit cards. There is no doubt that every one has the intention of paying off their outstanding balance, but as debt keeps on piling up, they find themselves scraping through by paying the minimum amount due each month.

Not only credit card debt is the most expensive form of debt, revolving credit also has a damaging influence on your Cibil score. If you are heading towards a situation where your credit card debt may spin out of control, it is most likely that you are displaying one or more of the following signs.

You dread opening your credit card bill

The worst thing that can happen to a credit card user is being shocked by their credit card bill. If you are worried about opening your bill, as you know that it will contain a number which is way beyond your repayment means, you have a problem at hand. Worse still, if you do not even open the bill and just pay the minimum amount due each month, thinking you will receive a windfall someday to pay off your credit card debt at one go, you are literally digging your own grave!

You don’t know when you will be debt free

If the unpaid balance on your credit card is substantial and you have no idea by when you will be able to pay it off entirely in order to attain a debt-free status, you are not in a happy situation. Even if your credit card balance has gotten out of hand, you need to take the bull by the horns and sit down with pen and paper to chalk out a repayment strategy. If you are unable to make calculations yourself, take the help of a financial planner or a credit repair agency. It will be your first step towards financial redemption!

You are thinking of shuffling around debt

The credit card market in India is intensely competitive and the card issuers are likely to be reaching out to you everyday with attractive offers. They even tell you that you can transfer your outstanding debt from one card to another and the interest rate will be zero or nominal in the first few months. This may seem like a delectable offer if you know that you are reeling under credit card debt, but what the new card issuers may not tell you upfront, is that the balance transfer is nothing but a smoke screen of sorts.

You may think you have temporary relief, but what you may not know is that all of it is going to come at a price. Not only you will have to pay a balance transfer fee that can be between 2-3% of the transferred amount (depending upon the bank), the balance amount that can be transferred is capped at 75% of your total outstanding amount. So it effectively works out to be a double whammy for you. Besides, if you choose to close your previous credit card, your overall credit utilization comes down. This is also a potential detterant to your Cibil score.

If you have a credit card outstanding balance that you think has gotten out of control, it is better to approach your existing lender to ask for easier repayment terms or an interest rate waiver for a few months. Most banks are unwilling to let go of their customers and are likely to offer you a plausible solution for faster repayment.

Your CIBIL score is going downhill

It is important to keep a hawk eye on your CIBIL score and CIBIL report, as it is a mirror of your financial health. If you find that your CIBIL score is dipping, it is probably on account of your repayment history.

The repayment history has the most important bearing of 35% on your CIBIL score, and if you have not been paying your outstanding amount before the due date each month, over time your debt will pile up, bringing down your CIBIL score.

Thus, as you can see, unpaid credit card outstanding balances can be intensely damaging to your financial health and can destroy your peace of mind. Therefore, keep a check on your spending and pay off your outstanding balance on your credit card at least five days before your due date. However, if your credit card debt, has already gotten out of control, it is important to keep your head on your shoulders and work out a repayment plan as soon as possible. It will be an uphill task for sure, but it is the only way to rectify your financial situation and will also bring your CIBIL score up to a satisfactory level over a period of time.
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(About the author: Rajiv Raj is the director and co-founder of www.creditvidya.com)