How to Avoid the Credit Card Debt Trap

For people who have good money management skills and are disciplined with their spending, a credit card is a great tool for saving money and improving credit. However, many see it as a shortcut to the debt trap. People who get trapped in credit card debt typically do so by paying expensive financing fees on past-due balances.

Let's look at some advice that will assist you from paying exorbitant finance fees while using credit cards.- How to avoid Credit Card Debt Trap

Spend just what you can afford to repay

If cardholders don't pay their balance by the due date, credit card issuers will assess financing fees. Additionally, unless the current debts are paid off, this may result in the cancellation of the interest-free period for any future credit card purchases. Additionally, if cardholders are unable to pay back the minimum amount due within the allotted time frame, the card issuers assess late payment costs. This can reduce their credit score and their future eligibility for loans and credit cards. Therefore, consider your ability to pay before using your credit card. If you are unable to pay the whole amount owed within the allotted period, attempt to pay the minimal amount needed and refrain from using your credit card again until the full amount owed has been paid.

Decide on the EMI Conversion option.

Users of credit cards who are unable to pay off their whole balance by the due date may think about turning unpaid balances into EMIs. The option to convert some high-value transactions into EMIs beyond the predetermined threshold amount is also offered by card issuers. When compared to financing costs assessed on outstanding credit card balances, the interest rate on such EMI conversions is significantly lower. Additionally, since the EMI length can vary from three to sixty months depending on the card issuer, card users should select one based on their ability to pay the EMI. Once they convert the outstanding balances into EMIs, cardholders can continue to benefit from the interest-free period on subsequent purchases.

Avoid Using a Credit Card to Withdraw Money

Credit card ATM cash withdrawals are subject to fees starting on the day of the cash withdrawal and continuing until the entire amount is paid back. Such ATM cash withdrawals can result in cash advance fees of up to 3.5% of the amount taken. Therefore, make every effort to stay away from this. If you can't prevent it, make sure to settle the balance as quickly as you can to avoid accruing financing costs.

Choose Free EMI Options for Major Purchases

In order to give free EMIs on the purchase of specific goods or services, credit card issuers collaborate with retailers, manufacturers, and service providers. Only the purchase price must be repaid via EMIs, and the merchants, manufacturers, and service providers are responsible for any associated interest costs. However, the cardholder is responsible for paying the GST imposed on the interest component. On the basis of their affiliations with the manufacturers or retailers, several credit card issuers further give their clients discounts on purchases made using no-cost EMI alternatives.

Therefore, consumers who want to make large purchases but lack the means to pay for them can look for free EMI alternatives offered on such purchases through their current credit cards. This would enable people to pay back the price of their desired things in EMIs, in accordance with their ability to pay, and free of finance fees or interest costs.