Credit Card is a convenient means of shopping . What is often forgotten is that Credit Card Cos aren’t in the business for charity or public service but to make maximum profits from customers.
Credit card debt is an example of unsecured consumer debt, similar to a personal loan that accrues over time when U the customer Charges things on the Credit Card but fails to pay it back in time.
As economies get more complex card money is preferred over paper money and statistics shows Credit card debt is said to be higher in industrialized countries.
- United States (April 2005) $735 billion
- United Kingdom (July 2004) £55.1 billion
- Australia (2007) $41 billion (AUD) 
A fast developing India is no stranger to this phenomenon and CC debt is fast growing. Despite a cultural resistance to casual credit, the industry is growing at a rate of 30% every year.
Though the market is regulated by the RBI, the CC companies are still kings . They will want a customer to be in debt but not delinquent and once ur in debt expect charges fines and very high interest rates on it.
When you apply for a credit card, read the FINE PRINT, find out what is the JOINING and RENEWAL fee . Then ask for the interest rates on ‘revolving’ credit and what are the charges and fines for late payment and other things. This is calculated as an Annual Percentage Rate (APR), divided by 365, for a daily calculation, or 12, for a monthly figure. This, in most cases, is between 34 – 42%. Indian credit card companies write off one in ten loans as bad debt no wonder the rates are so high.
Remember poor credit history tarnishes your creditworthiness and it can becomes difficult for you to get a Home or a Personal loan at favorable rates. Most Banks and CC Cos report defaulters to Credit Bureaus such as The Credit Information Bureau (India) Limited or CIBIL, and worse as Personal Credit rating is still a new concept, it is a lot more difficult to even get ur name off their roster even if it has been done by errant bankers.
- Do you have a large outstanding balance ?
- Do you always pay the minimum due on your credit cards each month ?
- Have you upped ur card limit because u have reached your limit or maxed it out ?
- Do you use one credit card to pay off the bills on another card ?
For a debtor the first step to independence is acceptance that you are in deep financial shit and you need help and this is the most difficult thing. It is even more difficult to discuss this with people.
A very telling survey has found that the last thing people want to talk about is their credit card debt.
Eighty percent of the respondents said that they were somewhat or highly unlikely to talk about the amount of credit card debt with someone they just met. Details of your love life were a close second with 78 percent of respondents saying they were somewhat or highly unlikely to broach the subject, with salary details right behind at 77 percent. Other unmentionables: monthly mortgage or rent payments (69 percent).
If you’re in trouble, tell someone about your debt. Tell a person you love and you trust and you are comfortable with about the financial mess. It could be your parent/s, your 3month old child, your best friend. Make a start. Talk about it, not just how much you owe, but to who and why. Try talking to one person. This week. Believe me, It will lighten your load! Keeping it taboo keeps you from getting the help you need. Best thing is to talk to Responsible people, who know a few things about finance, people who you trust, and take advise from.
Make or get your personal balance sheet and cash flow sheet made and analyse your spending for the last 2 yrs. Get all your credit card bills together. For each account, write down the total balance and the minimum monthly payment required.
- Be sure you make the minimum payments on your credit cards until you have a financial plan in place. Look at your spending habits and make cuts where you can to find the money to pay your credit card bills.
- Maintain payment records religiously as they are proof in case u will have to fight it out.
- Make payments at onsite bins not ofsite bins because sometimes companies delay the clearing cheques to charge you late payment charges.
- Stop or reducing using ur credit card/s. Give the card to a trusted relative to be kept under lock and key because – Hey the spending habit needs to be killed !
- If need be, use all your savings to bring your outstandings to zero. Remember savings earn you at the most 9% annually while savings bank account gives you 3.5% . At 34% the annual interest payment (w/o other charges) on a 1,00,000 cc debt is Rs 34000 or Rs 2833 a month.
- If your debt is above 50000 or above try taking loans from friends or personal loans from banks to repay credit card debt. Personal loan rates are at 16% Else consider transferring your balance to a low-interest card for the time being.
- Pay off cards which charge you the highest interest rates etc first and if that is not possible prioritise CC payments over any other debt. Don’t put off settling your dues for another day. The more you delay, the more the bills will mount.
This post is mainly inspired by a friend. Hope he reads it and is making amends.