People happily swipe their credit cards to realize their travel dreams and to fulfill their long-suppressed shopping desires but by the time they realize this, all their credit cards are maxed out. Simply swiping your credit card to finance your needs and wants is very easy but this can be harmful if you have no control over your spending. Admittedly there are a lot of advantages of using credit cards, provided that you know how to deal with the negative aspects.
Do you Use Credit Cards for Financing your Needs and Wants?
Since there is no yardstick that will tell you if your credit card spending is getting out of control, it is important to watch out for these 6 warning signs:
You’ve Maxed Out All Your Credit Cards
A maxed-out credit card is your very first warning sign that you haven’t been keeping up with your monthly payments. If you’ve maxed out on multiple credit cards, you can only expect your financial issues to have a compounding effect on your repayment ability.
You can only Afford to Repay the Minimum Amount
This is a sure-fire sign that your financial situation is getting out of hand. Since minimum payments are the least you need to pay on your credit cards to maintain your accounts in good standing, your credit score is sure to suffer a huge blow if you can’t even pay the lowest amount.
You are Consistently Failing to Pay on Time
Once you start missing out on your minimum payments, your finances are in big trouble. By the time you miss out on your second payment, the interest rate shoots up, making it very difficult for you to catch up on your minimum payments unless you make some big changes.
You’ve been Using Your Credit Cards for Daily Purchases
If you need to use your credit card for everyday purchases, you’re not too far from bigger financial problems. Not only are you running the risk of depleting your available credit but also making it very difficult to repay your debt further on down the line.
Your Impulsive Purchases are Blowing up Your Budget
If impulsive purchasing has become second nature to you, then it is high time you started questioning every purchase decision you make. Know where your money is going, determine your leaks, and make adjustments wherever necessary to get out of a financial bind as soon as possible.
Your Creditworthiness is Constantly Dropping
Your CIBIL score reflects your creditworthiness or how likely you are to default on your personal loan. The amount of debt that you are carrying in comparison to your available credit is typically 30% of your CIBIL score. So, if your score is falling despite making the minimum payments in time, it shows that your credit card debt is mounting each month.
6 Fail-Safe Ways to Control Your Credit Card Spending
If you don’t want your credit card debt to get harder to deal with, make these 6 changes:
Keep a Constant Check on Your Spending Habits
The very first thing that you need to do when you discover that your credit card debt is out of control is to stop using your credit cards altogether. Every additional swipe from now is only going to add on and the bigger your balance, the harder it will be for you to pay it off. It may be difficult at first to resist the urge to use it, it happens to the best of us; even those in retirement can’t resist a credit card.
Get Your Finances in Order
Start right by staying on top of your credit card statements and pay your bills on time. Avoid late payment fees as they can lower your credit score and create a cash flow calendar for tracking all your monthly bills and regular expenses from paycheck to paycheck.
Leverage a Line of Credit to Pay Off Your Credit Card Bills
The best way to repay your looming credit card debt is to convert your credit card dues to a personal line of credit. Doing this will not only avoid a bad credit score but also help you save money because the interest rates of a line of credit are lower than credit card interest rates.
Learn to Live Within Your Means
When faced with a financial crisis, don’t spend more than what you make. An easy way to do this is to put your credit cards away. Live a frugal lifestyle, make only cash payments, don’t overdraft your checking account and finally, treat all your financial obligations responsibly.
Create a Budget and Stick to It
Having a budget makes you aware of your financial limitations so you don’t exceed them because even the most responsible credit card users tend to go off track in the absence of a budget. This needs some serious dedication and discipline, but it surely helps keep your expenses in check.
Improve Your CIBIL Score
If your credit card debt has negatively impacted your creditworthiness, work on improving it. Review your credit report and determine what’s causing you the most harm, whether it is your past-due credit card bills or your accounts that have long gone into collections. Once you know your priorities, create a plan and start repaying.
If you want to avoid getting caught in the vicious cycle of credit card debt and still want to enjoy the convenience and flexibility of a credit card, you can consider the option of a line of credit where you can use your 100% credit limit without the hassles of a credit card.
Shiv Nanda is a financial analyst who currently lives in Bangalore and works with MoneyTap, India’s first app-based credit-line. Shiv is a true finance geek, and his friends love that. They always rely on him for advice on their investment choices, budgeting skills, personal financial matters and when they want to get a loan. He has made it his life’s mission to help and educate people on various financial topics.