Credit cards give breathing space to your personal finances. You can make purchases today and pay for them in the next billing cycle. This spending flexibility can be a possible reason why credit card usage in India reached a historic high of ₹1.48 trillion ($17.8 billion) in August 2023.
Given such heavy reliance on credit cards, understanding how to manage debt becomes crucial. Without proper management, it is possible to feel trapped in a never-ending cycle of payments on a balance that hardly seems to decrease.
To help, here are the best ways to manage and reduce credit card debt.
- Understand how much you owe
First of all, make a list of all your dues. Note down the interest rates, total amount owed, minimum monthly payments, and due dates for each card. This clarity will help you see which credit card dues are causing you the most financial pain and make future decisions accordingly.
- Use the right card for discretionary expenses
Create a monthly budget by recording all sources of income and every expense to spot non-essential spending areas that can be reduced or managed better. You can also use specific cards for specific spending categories to make the most of rewards and discounts.
For example, if you spend ₹8,000 monthly on dining, shopping, and entertainment, you can use the IndusInd Bank EazyDiner Credit Card to get high rewards and heavy discounts on these categories. You can get additional benefits, like:
- 2,000 welcome bonus EazyPoints
- Significant discounts at over 2,000 premium restaurants
- Complimentary movie tickets through bookmyshow.com
- Free domestic airport lounge access every quarter
- A fuel surcharge waiver at all fuel stations across India
You can allocate savings from this card towards paying off your credit card debt.
Apply for an online credit card and get started with IndusInd Bank today. Enjoy a 100% digital, paperless process and a world of convenience at your fingertips.
- Pay more than the minimum amount each month
Minimum payments mostly cover interest rather than principal. Over time, this could mean paying much more than what you borrowed. Hence, it is recommended to double or triple your minimum payment if you have savings. This helps reduce your total interest burden and get out of debt faster.
- Choose your debt-reduction strategy carefully
How you deal with your debt is totally up to you. However, the two most common strategies are:
- Snowball method: With this method, you pay off the smallest debt first. Once you pay off the smallest debt, move the payment amount to the next smallest. As you clear each smaller debt, the momentum builds, similar to a snowball rolling down a hill and growing bigger.
- Avalanche method: This method focuses on the debt with the highest interest rate first. Keep making minimum payments on other credit card dues but put extra money toward this one. Once it is paid off, move to the credit card debt with the next highest rate and repeat the cycle. This method helps to save on interest over time and speed up your journey to becoming debt-free.
- Set up autopay
To prevent accidental missed payments, automate your credit card payments. Timely payments help avoid costly late fees and protect your credit score as well. You can set an auto-debit instruction for a specific date for every month. Just make sure you have sufficient balance in your account to cover the payments.
More tips to manage and reduce your credit card debt
| Monitor your expenses | Write down all your expenses or use a budgeting app to spot where you can cut costs and save more. |
| Use windfalls wisely | If you get any extra income, such as tax refunds, bonuses, or cash gifts, use it to pay off your debt. |
| Use balance transfers | Transfer high-interest debt to a different credit card online offering a better rate. |
| Avoid new debt | While paying off your existing debt, try not to make new charges to prevent your balances from increasing. |
Key takeaways
Credit cards can be powerful tools for managing your finances when used responsibly. But if used irresponsibly, they can also lead to a debt trap. Hence, focus on the tips explained above to manage credit card debt prudently. You can choose balance transfer options, control future expenses, automate bills, leverage grace (interest-free) periods, or use windfalls in a wise manner.
Good credit card management is about taking consistent steps in the right direction and staying dedicated to your plan. Most importantly, apply for a credit card with the right bank so that your financial journey can be affordable and stress free.
