How to avoid Credit Card Debt?

What is a credit card?
Credit cards are also known as plastic money. As we all know that Plastic Money is emerged at the end of 20th century following the introduction of credit cards. PIN (Personal Identification Number) code is required to perform transaction with the plastic money.  Customers get a credit limit up to a certain limit on their credit card issued by financial institutions.  This card is used by the customer directly to pay for his/her purchase or for online purchase.  The credit limit of the card is determined by the financial institution based on the customer's credit score and monthly income.

"We accept credit cards" is information you may have seen at various stores, grocery stores and many merchant stores.  This statement is usually accompanied by some stickers (Visa / MasterCard etc.).  Credit cards have changed businesses and our lives to a great extent.  A few years ago there were only a few shops that accepted credit cards, but today you will find that most shops accept credit cards.  In fact, some shops (such as those related to a large retail chain) not only accept credit cards but also supply credit cards.  These credit cards give you the right to give discounts on using them in any store of that retail chain.

With credit cards around, a lot of people have stopped carrying any cash with them or just carry a very small amount of cash with them. That means that any shop that doesn’t accept credit cards is potentially losing customers. In fact, this is one reason why almost every merchant accepts credit cards.

With the evolution of the Internet, the credit card industry also took a new turn and e-commerce and e-shops came.  So, those stickers of "we accept credit cards" went on the doorstep of Internet shops.  Thus the era has come when almost every online-shop has (directly or indirectly) started accepting credit cards.  In fact, it is the foundation upon which the entire online-business industry is based.  This is the best feature.

Need of the Hour
Credit cards are no longer a luxury, they are almost a necessity.  This is the reason why most people today are using credit cards.  In fact, many people have more than one credit card.  Therefore, the credit card industry is growing by leaps and bounds.  However, the credit card industry and credit card holders face a major problem called 'Credit Card Debt'.  To understand what 'Credit Card Debt' really means, we need to understand the workflow associated with the use of credit cards in this way.

Start of Fraud
Fraud is associated with almost every financial instrument.  So the fraudsters came here too, who started saying that "we accept credit cards".  These fraudsters use many advanced techniques to commit credit card related fraud.  Some of them disguise themselves as online merchants who accept credit cards as a method of payment (the actual objective extraction of important credit card details).  These fraudsters either clone the credit card or just note important information from them (and use it for online shopping).  Some other fraudsters mislead innocent people to disclose credit card details.  There are also tech-savvy fraudsters who use computer programs / software / devices (spyware) to spy on people who use their credit cards for online payments.  These spyware capture their credit card information and use it to their advantage through the Internet.

These are important issues that you definitely need to be careful with.

Credit Card Operation
Credit cards, as the name suggests, are cards on which you can get credit ie lending (your credit card loan).  Your credit card is a representative of the credit account that you hold with the credit card supplier.  Any payments you make using your credit card are actually your borrowings that contribute to your credit card debt.  Your total credit card debt is the total amount you repay to the credit card supplier.

You get a credit card loan bill on a monthly basis as per the rules and this shows your total credit card debt.  Thus, you have to pay your credit card debt on the due date.  If you do not pay on the due date, you have to pay late fees and interest charges.  However, you are also given the option to make partial (minimum) payments, in which case you do not incur late fees but only interest charges on your credit card debt.

If you do not pay your credit card debt in full, then interest charges are also added to it. Therefore your credit card debt keeps increasing.  It is necessary to state here that the interest rates on credit card debt are usually higher than the interest rates on other types of loans / borrowings.  In addition, the amount of your credit card debt increases every month as interest charges are added to your credit card debt.  If you continue to make partial payments (or make no payments), the interest charge on the newly increased debt is calculated anew.

When you stop paying the interest of the previous months, your credit card debt accumulates rapidly and soon you find that what was once a relatively small debt has ballooned into a big amount which you find almost impossible to pay. Therefore, if you do not control your spending habits, your credit card debt grows even faster.  This is how the vicious cycle of credit card debt works.

Credit card debt relief measures
Therefore, it is necessary to understand all the remedies after knowing that there is a lot of risk in the operation of the credit card as well as you have to repay your loan with a high interest rate on the use of the credit card.  Those suggestions are as follows --

Pay higher interest rate first - Try to find the interest rate on each credit card.  Then you will be able to know on which credit card you are paying more interest.  Accordingly, plan to repay for that high-interest card first.

Double your minimum payment amount - Double the minimum amount you have been asked to pay.  This will give you a lot of relief.

Continue small payments - It is not necessary that the credit card bill will be paid on the due date.  If you make a small payment even before that due date, you will avoid paying a higher interest amount because the loan amount on the card attracts interest on your average daily balance.

Reduce your expenses - Reduce your daily expenses so that credit card dues can be easily paid from the amount saved.

Take a loan on low interest - If a bank or institution offers a loan at a lower rate of interest, get a loan from there and use that amount to pay the credit card loan.

I believe that the implementation of the above mentioned measures will definitely help in getting rid of credit card debt and you will be able to lead a better life.

                          -- Dr Bibhash Chandra Jha