Credit cards, if not used responsibly, can easily and quickly lead to a debt spiral. Not paying credit-card outstanding can become financially draining, as you keep accumulating interest on the balance as well as new purchases, making credit-card debt larger with each day.

Also read: RBI cracking down on P2P credit card transactions

While unforeseen emergencies can sometimes lead to unmanageable debt, in many cases overspending and irresponsible usage lead to such an insurmountable debt. Hence, it is important to manage credit cards wisely. Here are some ways to avoid credit-card debt.

Affordable purchases

Credit cards, with 40-to-50-day interest-free period, offer you the convenience of buying now and paying later. However, what comes with this benefit is the temptation to overspend. Spending too much can be risky, especially if you are unsure of future cash flow. You should be responsible with expenses by making conscious choices about purchases to avoid falling into debt. Prioritise needs over wants and avoid using the card for impulse purchases or luxuries beyond means.

Pay bills on time

Missed or late payments are one of the primary reasons why people fall into credit-card debt. When you miss payments, credit card issuers levy high interest rates and late fees, which can quickly accumulate. Furthermore, paying only the minimum amount due every month is also not advisable. It means carrying the balance month to month and accumulating interest charges on the balance as well as on any new purchases. Paying the entire balance each month on time is the best way to avoid credit card debt.

Avoid cash withdrawal

Credit cards also give the facility to withdraw cash from an ATM, up to a limit. However, cash withdrawals from credit cards can quickly lead to debt for two reasons.

One, cash withdrawals do not qualify for the interest-free period, which means interest will be applicable from the day of withdrawal. And, two, when you withdraw cash, new transactions become ineligible for the interest-free period, which means you will incur interest charges and with each purchase, cash withdrawals can quickly lead to debt accumulation and, therefore, must be avoided.

Credit cards can offer an interest-free period of up to 50 days. When you have multiple cards with varied billing cycles, you can plan expenses to make optimum use of the interest-free period. The purchases you make at the beginning of the billing cycle would get more interest-free days, as opposed to those made later. Hence, when you have to make a big-ticket purchase, you can use a card that offers more interest-free days. This will help manage monthly cash flow with ease and avoid debt.

EMI facility

Many credit cards offer Equated Monthly Instalment (EMI) options for big-ticket purchases. When facing difficulty making an expensive purchase, you can choose the EMI option and repay the amount in manageable instalments. Additionally, if you have already made such a purchase and are struggling to pay the credit-card bill, you can convert the outstanding balance into EMIs by contacting the card issuer. Opting for EMIs allows you to pay a larger chunk of debt in smaller and more affordable amounts. However, before opting for the option, check the interest rate, processing fee and related charges.

Limit number of cards

Managing multiple accounts or payments could lead to missed payments and debt accumulation. Also, with each additional card, the temptation to overspend increases, eventually leading to the accumulation of charges and card debt. Also, there are higher chances of losing track of spends and payments. Therefore, limit the number of cards you have to what you can manage.

Review statement

You should regularly check credit-card statements as it will help you understand the spending pattern and the categories on which you spend the most. Sometimes, wrong debits can also raise card dues, which should be rectified at the earliest. Regularly reviewing your statements will help manage cards smartly and avoid falling in debt.

Overall, responsible credit management is important to handle such debt.

Also read: RBI warns banks against activating unsolicited credit cards, mandates consent before issuance

By implementing practices such as creating a realistic budget, monitoring financial health and paying bills on time and smartly, you can effectively manage finances without debt burden. For those already struggling with debt, balance transfer at a lower interest rate or a personal loan can be an approach to clear the debt burden.

(The writer is Head of Credit Cards Business, Paisabazaar)

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