A credit card in your wallet can make one feel feisty. That luxury watch, designer bag or trendy sneaker may not seem so out of reach anymore.
This same credit card can get bulk bills knocking at your door because of mindless spending. If not dealt with caution, the grip of credit debt is closer than one thinks.
There are some principles that one can adopt to ensure they steer clear of credit debt. For example, it is never a good idea to max out one's credit card limit.
Despite the fact that banks will always be willing to extend the credit limit, it is best to not use the full credit that is available. It is also against the rules to use personal loans to buy any investments like land or mutual funds.
One needs to also understand that there is both controllable and non-controllable debt. While needs like medical emergencies qualify as non-controllable debt because one has very little control over the amount, there are expenses that can be controlled.
Discretionary spends that bring debts can very well be avoided. Debts that are caused by mindless spending can push one into debt that spirals with the hefty interest levied on payment delay, according to Virat Diwanji, a retail banker.
Credit On Credit
Now if one finds themselves in debt, there are also ways to minimise the pain of the default. Ironically, one way out is more credit. Taking a personal loan that is available with a lower interest rate would help in preventing the build-up of the hefty interest.
The reverse law of compounding will work, here as the lower rate of interest will work in the favour of the debtor. Taking secured loans is the primary method that can be taken if there is a huge outstanding debt.
Other Options
Getting into talks with the lender could also be an option if the credit score or record has been maintained in the past.
There can be some agreement of middle ground that can be discussed if the lender is open. Methods along the lines of re-payment into equated monthly installments may be an option for some. However, this option is not available to all.
This can only be done if the lender is convinced of a person's capacity to pay back if granted more time. The bank usually conducts an analysis to assess the individual's income, type of employment, credit score and other relevant history to decide whether to offer this option.
In case the credit behaviour in the past has been maintained, the bank will also be open some sort of agreements for larger amounts as they are not looking for bad debts, according to Vijay Jasuja, former chief executive officer of SBI Cards & Payment Services Ltd.
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