It is not uncommon for many youngsters to fall into a debt trap. Immediate gratification is a trait synonymous with many people as they rely overtly on credit card usage to pay off their expenses. Paying using a credit card means that you are spending money you do not have, thus, hinting at a liability that you have willingly taken while making your purchases.
The inability to repay the credit card debt on time results in a liability that keeps on mounting owing to the increased interest burden over the loan tenure. Credit card debt can be fatal, if not dealt with in time, which is why you must beware of the mistakes that aggravate the effect of debt on you.
Some mistakes you must not ignore while paying off your credit card debt include:
Scattering your net worth
If you do not know how much you are worth, there is no way for you to know if you can repay your liability. Check your net worth regularly. You can start by calculating your net worth. The monetary value of everything you possess is added to the monetary value of everything you owe to determine your net worth.
Know how much money you have in your account. Also, liquidity is an essential factor that you cannot afford to ignore. How much cash is available in your account will help you determine if you can pay off your credit bills in time or would pay only the minimum payable amount.
Often rich people with their money invested in fixed assets or paper investments like bonds, funds, and stocks find it difficult to repay credit card debt due to the unavailability of enough liquid funds in their accounts.
Not having enough in a high-yield savings account
You did not care to set aside enough money in a savings account. This tendency to underestimate the importance of having enough cash, when needed, will cost you more than what you had perhaps estimated. If you have a credit card that you use frequently, take care to have cash equivalent to either the credit card limit or the amount you regularly spend using the card. This way, you will not miss out on repaying your credit card debt by the due date.
Also, the interest rates in savings accounts are going up, so it makes sense to have enough cash in your account. This will lend you the dual benefits of benefiting from interest income while redeeming your debt on time.
Constantly relying on credit card use
Credit card companies have done a fantastic job of marketing their products. The lure of extra points has led to many youngsters spending on items they do not need or services they can do without.
One reason why many people keep using their credit cards even after accruing debt is that they don’t want to give up the points. They have such a strong desire to avoid losing points that they conceal the obvious fact that if you carried any credit card debt for even a month at the current average interest rate of somewhere around 40 per cent, you have already paid for your points. If you've been using your credit cards to meet your expenses, pay your investment SIPs or repay your loan instalments, this can be a terrifying step.
If you are unsure of how rampant credit card use can destroy your finances, you must start by pausing your credit card use for the time being. Temporarily pausing your credit card use will help you evaluate how much liability you incur every month and also how much debt you must get rid of, to better manage your financial well-being.
If you have too much overriding credit card debt, it is time to get rid of the same. There is nothing shameful about being burdened under debt; your situation turns pathetic only when you refuse to acknowledge your debt and continue to aggravate the liability by not getting rid of it in time.