'Don't use your credit card for small expenses'
We asked readers to send us their advice and suggestions on how to get out of credit card debt. Here, we publish two more responses.
First up reader Naresh Gupta tells how he got out of a credit card debt trap.
Credit cards are part of our lives. Though we would like to stay away from them, it is difficult since it makes sense to have the purchasing power and ready cash without actually carrying it.
I have been using a credit card for the past four years and was in the vicious cycle of debt for the last three years. As soon as my salary was in, the credit statement will also come and would ultimately end up eating most of my salary. After paying off the credit card bill, there would not be much cash in my account so I would use the credit card again... and so the cycle continued.
To prevent such a situation, the first thing to do is use only one credit card. There is no point packing your wallet with various cards -- it might look good to have a bunch of cards but ultimately you have to pay for it, and heavily too.
Next, you need to restrict the use of your credit card to only only on high-value items (set a limit of Rs 5,000 or 7,000) where saving cash in your account make sense. Don't use it for small things like Rs 169 at a burger place or Rs 260 on pizza or Rs 400 on movie tickets. These small expenses tend to add up by the end of the month. Instead withdraw cash from your savings account or use your debit card. You will be amazed to see how dramatically unnecessary expenses drop. Also, this will help you to keep track of your account balance.
The first one or two months will be very tight and you may even have zero balance but after that you should have good cash flow.
It made sense for me and it worked. Give it a try.
Illustration: Rediff Archives
'We got a loan three times what we applied for'
Next Shrija Venugopal shares her bitter experience with credit card debt and tips on how to avoid it:
My husband and I were in debt about four years ago just because of our own mishandling of money.
We had 2 or 3 personal loans on our credit card at the time.When the time came to close them, one of my friends suggested that since the balances to be repaid were very low we should approach the bank and ask them for a loan for the balance amount so that the EMI cost could be cut down. The loan balance was only Rs 60,000.
I did as she suggested, convinced that it would be a better option. Since the card was in my husband's name, I asked the bank representative to go to him directly to fill the form. My husband without checking the loan amount mentioned on the form, signed it. After two days I received an SMS stating that the loan amount passed was Rs 1.8 lakh. I was devastated! We did not even draw good salaries at that time.
This loan was apart from the home loan that we already had. In fact the loan amount disbursed to us was three-fold the required amount. I called the bank to clear the matter and they sent me the copy of the application form which my husband had signed. I called up the direct selling agent of the bank, but to no avail. He acted as if he was unaware, but I suspected that he might have done this deliberately to fulfill his target. My husband visited the bank's office, but they were of no help either. They were adamant, stating that the forms contained his signature and that if we opted to foreclose the loan they would charge a penalty of Rs 7,000.
We were in a dilemma about what to do, but to answer our prayers, my husband's colleague was ready to take the extra loan from us and assured us that he would pay us back in instalments. This was about four years ago. I took charge of our finances and closed all the credit cards, and also this huge loan.
Today we both are very happy, leading a debt-free life. We have also been able to save a fair amount of money for our future.
But we still remember the hardships that we have gone through -- we had to lead a very nornal life, free of any extravagances to repay this amount. It took almost four years to end this ordeal. So my advice to everybody is:
- Make a monthly budget for your household expenses.
- Set aside a monthly expense for entertainment.
- Use the credit card only in an emergency.
- And save all the extra money that you get. That is the only way to live a debt-free life.
I dedicate this to my best friend who helped us get out of our financial troubles.