A Step-by-step Guide To Clearing Credit Card Debt As Told By A Seasoned Financial Planner

There are plenty of things in this world that are easy to get into but hard to get out of. Debt is one of them. Credit card debt, to be precise, ranks among the top of the pile for most working professionals. So, how do you get rid of your debt? Many verses have been written and digested but none have provided the right insight or have had the impact that a person in debt is satisfied with. So, here’s our take on how to become debt-free as told by a financial planner.

• Know how much you owe

In order to clear your credit card deb you need to how how much you owe in the first place. We don’t mean a ballpark figure here, we expect you to know exactly how much money you owe your card company, to the cent. While at it, also create a list of all the expenses you incur every month: bills, outstanding balances and its interest and just about everything you spend your money on.

• Work on your spending habit

If you have racked up sizeable debt that requires an external counsel to clear it, there’s a definite chance that your spending habit has been bad. To make sure you are never in any debt whatsoever, you need to take a deeper look at what you spend on and bring them under control or halt them altogether. Every one of us have a habit of spending on something we don’t necessarily require: a gym membership here, a random subscription there, and the list goes on.
The problem here isn’t that you have these subscriptions, the problem is that you barely spend any time making use of them. So, make sure to rid yourself of any such commitments and work consciously towards changing your spending behaviour.

• Consolidate your debt

Once your know how much debt you are in and have figured out what expenditure you can live without, you will need to work on finding a way to make the payment. For starters, you can opt for a balance transfer and switch to a different card company that offers a much better Annual Percentage Rate (APR) than your current card. If you think a balance transfer isn’t the right option for you, go for a personal loan instead as they come with much lower interest rates and offer longer repayment periods.

• Make use of your assets

Use any assets you have to clear off your debt, even if it is at the slightest. In case you have an RD or an FD that is close to maturing, use it up to clear off a major chunk of the debt. This way you won’t have to go looking for a loan. Also, if you do have one of these and decide to go for a loan, you will end up paying more interest than an RD or a FD is likely to earn in the same time period.

• Go one card after the other

When the debt keeps on piling, the pressure on you to clear it will keep mounting too. Rather than worrying about clearing the debt altogether. Go on a card-to-card basis, look at the card with the highest outstanding first and pay that off first. Prioritising the payment from most to least in terms of balance payable will help reduce the interest burden on you.

• Follow a strict no balance carrying policy

Credit card debts happen when you starting carrying outstanding balances and add to it before clearing the remaining ones. So, avoid the ordeal completely and follow a strict no balance policy for yourself.
A credit card debt is a really bad thing to have, but it is by no means the worst. WIth proper planning and strategy it can be overcome but it requires the right kind of discipline from you.

Indebtedness among Indians is growing and you should be worried about it

Indebtedness in India is rising and the general public should be worried about it. There are two major reasons for it and the Indian general public should not ignore it. The first is industrial credit. Industrial credit is nothing but the loans provided to businesses or corporations. Industrial credit has been increasing for many years with debit card expenditure actually declining. The combination of industrial credit with consumer spending increasing over the past few years has signalled an era of growing indebtedness among Indian consumers.
As per the State Bank of India’s chief economic advisor, Dr. Saumya Kanti Ghosh, the indebtedness and the tendency to borrow money in Indians is increasing with every passing day. As per Ghosh the study for the past 10 years between credit availed and personal loans and the results showed that growth of credit industry would lead to increase in personal credit and not vice versa.

The economists have also listed the reasons for which everyone needs to be worried about the recent trend of earning more than the average customer is entitled to:

1. The gap in the money that is deposited and the amount of credit that is spent has been widening recently. As per data collected, All Scheduled Commercial Banks Deposit Growth this year was recorded at 9.9% which is the lowest it has been in the past 53 years. Also, the credit offtake increased last year by 11.3%.
2. The biggest contributor to the increase in lending growth has been the personal loan with most of the applicants applying it for housing and MUDRA. MUDRA is an enterprise that provides loans to small and micro organisations. However if the largest increase in all the segments in personal loan is considered it is the credit card that takes the cake.
3. The household debt which is nothing but the amount of credit owed per credit card in India has been rising rapidly. The figure for the same stood at Rs.8,668 for the year 2016 with the increase from last year being 15.5% which is a significant number.
4. Despite the drop in Wholesale Price Index (WPI) inflation due to the negative inflations over the past year and a half, the real outstanding has increased. This can only mean that the value of outstanding credit for the average person has increased more than the expectation.
5. The nominal per capita income has been recorded at Rs.70000 whereas the outstanding credit stands at Rs.10000 and the difference between the two is worrisome to say the least.
6. The gap between the nominal per capita income and the outstanding credit does not seem to decrease enough even if the consumer price inflation is considered. This only increases the financial risks that will be faced by your average household with balancing the sheets becoming increasingly difficult.
7. If debit card and other mode of spends were rising along with credit card spends there was not much to worry but sadly that is not the case. Only credit card spends have been rising over the past 5 years.
8. Two reasons which can be attributed to increased credit card expenditure include e-commerce transactions and lower inflation. The worrying factor is borrowing more money then the capacity to repay it back. This entangles the whole financial system and creates a circle of debt.
9. Another factor to worry is the refinancing of existing loans on fresh credit cards that are being issued to the customers. This is a worrying trend which is redistributing the same pie in a fresh pan.

All is not gloomy
Yes, the increase in credit card expenditure is a worrying trend but all is not gloomy. There are upsides to the increase in credit card spending too. Increase in credit card expenditure on average per person in the country exhibits economic growth, an improvement in economic momentum and a surrounding in which the inflation is low. The transfer from an increase in the credit expenditure and decrease in the debit expenditure is known in economic terms as the structural shift.
If the absolute figures are considered, they are still under control. Before the year 2008, the credit card outstanding stood at 5% which is now at 3%. Let us no forget that the system of taking credit in India through the means such as credit card is fairly new and started just 20 years back. One way of restricting the amount of the ever increasing credit expenditure by setting the credit limit lower than what it currently is on average.