How to Avoid Credit Card Debt pileup?

    The growing trend in credit card usage has prompted banks to evolve a string of creative offers, lucrative discounts and scores of benefits to lure customers. With interest earned from credit cards offered by different banks being a phenomenal source of income, singapore banks are constantly restructuring features of credit cards to correspond with customers/singaporeans interest and requirements. In the process of achieving this, the amount of credit card debt has seen a massive increase. A whopping over 80% of credit card users are in some form of debt on their credit cards and there sure doesn’t seem to be any slowdown in the unabated debt accumulation. While it isn’t easy to stay away from any form of credit card debt – theoretically it certainly is easy – it is extremely essential that debt levels are prevented from reaching insurmountable highs.

    By following some very effective measures, you can preclude insuperable degrees of debt and achieve a decent state of finances. Here are some measures you can adopt.

    Related Read: Common mistakes leading to Credit Card debt

    Proven ways to controle your Credit Card Debts:

    Spending less than 35%-40% of your monthly income

    The credit limit offered by the bank on your card will probably be twice your monthly income. If you have a single credit card account, limiting yourself to spending not more than 35% of your monthly income on your credit card is good way to begin. Any instance where you spend more than 40% or 50% of your monthly income through your credit card will be the beginning of an unnerving debt pileup.

    A monthly debt of more than 50% can throw your finances off balance, especially considering other important expenses that need to be met for the month in question. Moreover, spending too much will force you to meet just about enough to cover your minimum monthly payment - the minimum monthly payment charged by banks is approximately about 3% of the monthly outstanding balance and also includes pending amounts from previous monthly payments, late payment charges and other charges that might hold applicable if they were to arise. Limiting yourself to spending 30% - 35% of your monthly income will certainly benefit you in managing your credit card debt efficiently.

    Avoiding cash withdrawals on your card

    Credit cards allow you to obtain cash advances to the tune of about 60%-70% of your credit limit. While it is appreciative that banks allow for this provision to meet emergency cash requirements, using your card for withdrawals can be more pernicious than you’d have originally imagined.

    Cash advances carry interest charges of about 28% p.a. and levied at a compounding rate on a daily basis until you’ve paid the amount in full. Besides, handling charges of about 5% or 6% of the withdrawn amount are also levied. This practically means that you’d be paying a lot more towards interest considering that interest is levied on all your purchases, again, on an everyday basis (this happens even if you miss out paying the entire monthly balance within the interest free period even once).

    Thus, by way of avoiding cash withdrawals using your credit card, you can control your debt from completely spiralling out of control.

    Negotiating the interest rate on your card

    As a credit card customer, whether existing or potential, you can negotiate the annual interest charged by banks. However, this move is contingent on how good your credit score is. If you have a decent credit score by way of prudently managing your debts in the past, you can negotiate a lesser interest rate with the financial institution issuing you the card.

    Your credit score is dependent on factors including the amount of debt owed by you, your credit history, your history of payments, and the type of credit you’ve availed in the past. A low or dismal credit score might see you availing a higher interest rate on your purchases, resulting in an increase in debt value.

    Holding Multiple Credit Cards

    Multiple credit cards can be a serious problem if you haven’t disciplined yourself in using your credit card. More the number of cards you hold, more the combined credit limit you are accessible to - this may psychologically work against you, leading you to spend frivolously. On the other hand, if you’ve trained yourself to judiciously use your credit card, having multiple credit cards and using them wisely can actually work to improve your credit score. The reason is that the ratio of debt used to debt allotted will be much less, giving credit companies and financial institutions the indication that you are a good manager of your credit.

    Learn : How to prioritize multiple credit cards repayments

    Converting huge debt into instalments

    Another effective way to avoid pileup of debt on your credit card is by converting debt on your card to monthly instalments. This can work well in the case of multiple cards too. Converting your debt into instalment payments also covers interest charges and allows you to better manage your investments for a given month. However, if you’ve committed to instalment payments, make double sure that you keep you card use to the bare minimum. If you hold multiple credit cards and hold a large debt on one card, make sure you limit your usage on the other cards you hold.

    Thus, by following these measures, you can avoid debt pileup on your card(s) to a great extent. However, these measures can certainly be difficult to adopt – precisely why you need to constantly keep reminding yourself to exercise restraint when you wish to use your credit card to make purchases.

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