Credit Card Debt

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Despite what you may hear about credit cards, getting into overwhelming debt with them is not inevitable. In fact, millions of credit customers charge regularly and never pay a penny in finance charges or other fees. 

Here is how you too can use plastic to your advantage:-

You do not have to owe.
It is entirely possible to use credit cards regularly and stay out of debt forever. How? By only charging what you can afford to pay when the bill arrives. Use credit cards as a payment tool, not as a revolving debt instrument. To make this method work you have got to track charges and your cash flow.

Know when short-term loans make sense.
Sometimes financing a sound purchase with a credit card is prudent - as long as the repayment time frame is short. For example, let us say you want RM 1,500 worth of living room furniture, but do not have the cash to pay for it immediately. If you charge the item to a credit card with a 1.5 percent interest rate per month and repay the balance in full in four months, the interest payment would total just RM 90. Not a bad deal. If you stretched it to two years, however, you would pay an extra RM 540 - quite a sizeable mark-up.

Owing is easy, repaying is hard.
Without careful attention, sinking into overwhelming debt is remarkably easy. When cardholders start out, their credit card limit is usually low, but over time it typically rises, which makes overspending very tempting. Paying down debt is difficult because as the balance climbs, the interest compounds and the payments increase. With funds promised to past spending, less money is available for current and future expenses.

Debt affects your credit score.
Not only is it wise to remain debt-free for your own bottom line, holding on to high credit card balances negatively impacts your credit score. To maintain a high score, your account balance should be under 30 percent of your available credit limit. And many personal finance experts advise keeping your credit utilization as close to zero as you can. Timely credit card payments are very vital. Miss more monthly payments and you will see a dramatic downturn in your credit score.

Develop a repayment plan.
Even if you are in the deep, you can probably climb out of debt with commitment and a plan as follows:-.

·         Limit spending to basic needs to free up cash to pay down debt.

·         Ask creditors if they will reduce your credit cards interest rates.

·         Prioritize payments by interest rates (pay the high-interest balances first).

·         Suspend charging while in the repayment mode.

Cannot make a payment? Ask for help!
While your credit card company is under no obligation to accept less than the minimum requested payment, do not fear. Try to work with your credit card company to work out repayment agreements.

Settle cautiously.

Want to settle your credit card debt for less than the actual balance? It is possible, but you need to offer a lump sum, and most creditors require borrowers to be at least a few months behind in payments. Arranging such a deal on your own is best, as companies that facilitate it often charge a substantial fee. Still, settlements should only be attempted after less radical steps to eliminate the debt fail, as they can result in substantial damage to your credit rating. 
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