Do you remember how often you take out your credit card for your purchases every month?
Is your answer "yes?" If you know how much money you should spend on credit card bills, congratulations! You are the boss!
But if your answer is no, and your credit card bills are piling up, you are in deep trouble.
Although credit cards are one of the easiest and most hassle-free tools to meet urgent or hefty financial needs, you are charged with high-interest rates if bills are left partially paid. So, if you are struggling to pay your outstanding, then this blog will definitely help you.
How Do Unpaid Credit Card Bills Can Impact You?
The worst damage you can do to your financial health is to leave your credit card bills unpaid or partially paid. If you have missed your credit card payment for over six months, you are a defaulter. Here's what happens if you become one:
Credit Score Becomes Negative
No one likes getting hounded by calls and visits from the collection center. If you often pay your credit card bill late or have skipped it altogether month after month due to financial reasons, you are at risk of plummeting your credit score. Having a good credit score is a must if you wish to take out a loan or an EMI facility in the future. The credit card provider also cancels all the benefits that you were given on your credit card.
Credit Card Account Gets Blocked
The credit card company closes your account as soon as you are notified as a credit card defaulter. Banks, other financial services companies, and digital money lenders blacklist you if you have a massive outstanding and haven't paid the credit card bills for more than six months.
Get Charged By High-Interest Rates
If your credit card bill is too high, your credit card company will urge you to pay only the minimum amount due. It is 5% of the total amount you owe. Don't fall for this trap. In case you have an outstanding balance on your card, the credit card companies can charge you interest as high as 40% on your overdue. It will only snowball the credit card bill.
Be Prepared For Legal Battle
After calls and being harassed by collection agents, expect to receive a legal notice from your credit card company. Non-payment of your credit card bills for a prolonged period makes you marked as a fraud. And once that happens, forget your plans to take loans from anywhere in the future. Prepare for a long legal fight.
Credit Card Company Will Acquire Your Asset
As a last resort to recover the money you owe to a credit card company, they will seize your fixed assets like your home, car, or jewellery. They also have the right to seize your deposit and savings account to recover your dues.
If these consequences have chilled you to your bone, learn how you can avoid credit card penalties.
6 Hacks To Pay Off Credit Card Bills Fast
Over the last few years, credit card spending increased by 43%, despite the rise in UPI transactions.
At the same time, the number of credit card defaulters has also skyrocketed over the years. According to data provided by TransUnion Cibil, 1,251 cases have been filed by various money lenders against willful defaulters to recover ₹24,765.5 crores.
So, if you want to avoid being subjected to such disturbing legal actions, use these six sure-shot tricks to pay off credit card bills fast.
1. Pay Off High-Interest Credit Card First - The Debt Avalanche Method
Are you avoiding the credit card bill with the biggest overdue like a plague? Wrong move. This is how you find yourself in the debt trap. This will only increase your load as more interest continues to accumulate.
So, pay off the credit cards with the highest interest rates first. Once you clear off a major chunk of your debt, your credit score improves dramatically.
2. Use The Snowball Method
Snowball is a popular debt-repayment method where you make the credit card bill payment of the lowest balance or lowest interest rates first before moving to bigger bills.
As you pay off the lowest credit card bills, don't stop paying the other bigger credit card bills. Continue to pay the minimum amount to avoid paying late fees or risk defaulting.
Let's take an example here: suppose you have 3 credit cards with bills of ₹30,000, ₹15,000, and ₹45,000. So, according to the snowball method, you pay off the ₹15,000 bill first before moving on to the ₹30,000 and ₹45,000, respectively.
3. Play The 15/3 Trick
The 15/3 credit card payment trick is still a comparatively new credit optimization strategy. Historically, it has been proven to boost your credit score faster. While it doesn't double your credit history, the 15/3 trick sure reduces the total amount due.
With this trick, you pay credit card bills twice per month. One payment you make 15 days before your next credit card statement is generated. The second time you pay is 3 days before the statement date.
It is effective because it tricks the system into thinking you are paying more. Furthermore, it also reduces your credit card utilisation ratio.
Learn how to improve your credit utilization score here.
4. Automate Your Loan Payment Process
In your busy schedule, chances are you may forget the credit card bill due date, and miss a payment. Avoid automating your loan payment process.
Assign a savings account and ask your credit card provider to deduct the bill automatically from that account every month on a particular date. This way, you don't need to worry about missing your due date.
5. Take A Consolidation Loan
As the name suggests, consolidation loans are used to combine multiple loans that are overdue into one balance. This loan lets you borrow enough money to pay off multiple money lenders at once. Thus, you will have to pay for only one loan and need not worry about not paying credit card bills on time.
The best thing about consolidation loans is that they charge a much lower interest rate. But, the only stipulation is that your credit score should be high enough to be eligible for this loan.
6. Opt For Balance Transfer Credit Card
A balance transfer credit card is used to pay off high-interest credit card debt at no extra cost. You can easily transfer the balance of this credit card to the card on which you owe money.
Some cards offer a 6-18 month window with a 0% interest rate. However, some cards charge 3-5% of your transfer amount as fees. Although it seems exorbitant, you get to save a lot from an almost null to low-interest rate.
Hope we have various methods of credit card payments explained properly. Although credit cards are great tools to pay for making emergency purchases, they make you reckless due to their 'spend now, pay later' mechanism.
That's why you can use a credit card only when you know you have the means to pay for that purchase once the bill is generated. Be responsible with your credit card usage. Read our guide to learn the right and most effective way to use credit cards here.