Handling credit card debts
The worst form of a debt that could afflict an individual and through him/her the entire near and dear ones is a Credit Card Debt. The statistics provided by Wikipedia is distressing. For instance, as on July 2008, it is estimated that U.S.A. is burdened with 962 Billion Dollars and while in rest of developed countries, this may not be of this magnitude, ((e.g.) Australia 42 Billion Dollars as on 2007);though it is believed that this is worst in developed countries, what is of greater concern is that developing countries are also catching up developed ones at least in this regard. The situation in
Given the above scenario, there is a considerable need for education everyone in handling Credit Card Debts. Of course, it may be very easy to say that one should not get into ‘Credit Card Trap’ at all but given the temptation of any individual to spend now and pay later, the constant promotional offers and advertisements made by Credit-card issuing Companies, this is a wishful thinking.
In a scenario where Credit Cards are going to stay, the tendency of the people to borrow for consumption or showing off are all going to continue, we would restrict the scope of this article as to how to cope with ‘Credit Card Debts’.
1. Estimate quantum of Debts: In handling any situation, the first and foremost is to identify the problem. In this case, one has to make an estimate of what he/she owes, to which Companies they owe, what are the differing interest rates and expiry date of each card.
Simultaneously, please make a note of your other debts/loans, which may be personal loan, mortgage or study loans.
2. Estimate Your Income: The next logical step is to identify all the sources of your income, including your monthly incomes, interest/dividend receipts. The second part may not be on a month-to-month basis, in which case, you should try to allocate on a proportional basis such incomes so that you have a clearer idea of what it adds up to on a monthly basis. While doing so, distinguish between the ones which provides a lower yield from the ones which gives a relatively higher yield.
3. Estimate Your Monthly Expenses: While estimating the monthly expenses, distinguish between the recurring ones and non-recurring ones, the essentials, the non-essentials. Apart from the usual recurring expenses which any household would have to incur, some expenses as medical cost may appear to be non-recurring, but they may fall into a recurring one if continuous treatment is needed for such life-style diseases as diabetics. Non recurring expenses depend on one’s age, social status and the type of personal traits he/she possesses. In case one is identified with some psychological factor connected with spending like compulsive-spender do accept this which would be helpful while seeking counseling.
Please also make the provisions for fixed monthly payments which may be towards other type of loans or any other payment.
4. Estimate available surpluses: After providing for all the above, make an estimate of the amount that would be available for paying your Credit Card Debts. The problem arises when you find that there is a deficit between the amount you have and the amount you need to pay towards the Cards.
In this scenario, resorting to following methods would be helpful.
The first and foremost thing is to make an analysis of higher interest carrying cards vis-à-vis the lower ones. Get in touch with that Company, explain your situation, request them for a waiver of interest rates and late payments and seek a one-time settlement. If your finances do not permit a one time settlement, ask for a staggered payment without interest. Simultaneously you should also cancel the card or request for freezing it in order to avoid falling into the trap again.
If you find the situation is out of control, please look at your investments, identify the one which gives you a lower return in comparison with the interests you pay for the card, liquidate them in full or part to pay off the debts.
From a psychological perspective, you should join a credit counseling group which would help you to cope up the stress. This may also to some extent help you in minimizing the harassment at the hands of the lenders, and in thinking in a much more calmer atmosphere, but, the real benefit is for those personalities who are compulsive-spenders.
Finally, if you are young, but trapped into this debt, explore sources to increase your incomes. If it means working double shifts or night shifts, do not hesitate to do it or in the longer run you would have more peace of mind by discharging the debt. Such an experience would make you wiser but also would kill the temptation in you to succumb to such debts.
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