Be aware of these 5 things if in credit card debt
Being under the scrutiny of debt collection agencies is not a situation anyone would like to be in. From incessant calls to being threatened with a law suit, you can face a very difficult time. So, if you have debt on your credit card here are some things you should be knowledgeable about to safeguard yourself from the clutches of debt collectors.
Think of smart debt management
The smartest thing to do when you are in debt is to repay in full. When this is not possible, you should work it out with your collection agency to arrive at a mutually agreeable payment plan. Debt collection agencies usually offer what they term as debt management measure. It involves
- Reduction of monthly payment
- Lengthening the payment term
- Increase in overall interest
While the additional payment by the way of more interest cannot be avoided, you can however make the agency reduce the interest rate.
Settlement of debt
Another option you have is accepting a debt settlement. Debt collectors generally offer settlement of debt via payment that is less than what you originally owe. They guarantee closure of debt, if you can pay the required amount. But there are considerations here such as
- Your credit will take a big blow. If you are prompt on repayments and yet want to settle, the collector will not send the payment to the creditor in order to negotiate for a lesser amount. This can reflect as missing payments in your credit history and will lower your score
- The debt settlement may be liable to taxes.
- Do not sign any debt validating papers on debt, which has been time barred or the suing period has expired as this can revive it.
Debt settlement has many loop holes, which collectors and creditors can take advantage of. It is best to view all pertinent details before you agree.
You may have money in fixed deposit or even in your bank account, while you have credit card debt. You can use the FD or any other investment you can break to pay off the debt in full.
Split the payments
If you don’t have any investment that can be cashed, another way is to pay the debt in installments. Most often debtors tend to pay just the minimum amount needed to escape penalty. But the interest keeps on accruing making you deeper in debt. So it is best to pay at least three times that of minimum payable amount.
For instance, if you owe 3 lacs and the minimum payable is 12,000, pay at least twice or three times of the value which is 24,000 or 36,000 INR. If this is not possible pay 20,000 INR at the least. This will have you out of the debt in one to one and a half year, provided you pay up consistently.
Consider a loan
You can consider taking a loan from family members or friends. This way you can pay off the debt on your credit card and pay back the family member or friend later. If this is not an option, you can also consider a personal loan. The interest will be around 16% but it is way better than the 40% you have to pay annually on your credit card. If you have a personal loan already, you can consider using the top up feature, which is better than getting a fresh personal loan.
The option to convert the loan to an EMI is another way that many people try with success. Most of the major Indian banks have this option with an interest rate ranging from 13% to 18%. Transferring the debt amount to another credit card is a facility that major financial institutions offer now. This is also a good way to pay off the debt and without interest as the new card would have low or no interest rate benefits.
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