Avoiding Credit Card Defaults

Many of us find ourselves caught in a situation where we find it hard to afford the minimum payment of our credit card bill, let alone bringing the outstanding credit balances down. A number of factors including misuse of credit card, sudden unforeseen expenses, sudden layoff and lowering of monthly income are responsible landing us in this ugly situation. What follows is the stage of mental tension as major chunk of your income is dedicated to payment of credit card dues and you find it hard to meet your daily essential expenses from the remainder salary.

Is there a way out of this trap? The answer is a definite yes and the famous proverbial saying fits here that “where there is a will, there is a way”. This requires financial planning based on realistic projections of your future income coupled with restraint on your spending habits.

As a first step, identify the factors that led you to this situation and these factors will vary from individual to individual.

There will be some who are in trouble because they could not resist their temptation and did lavish spending from credit card without realizing the future consequences. For them it advised that first of all they should apply for short term personal loan. Many institutions offer short term personal loan specifically tailored for purpose of paying off bad debts. Such loan is repaid in equal monthly installments and carries much lower interest rate than credit card. You also have the option of choosing payback period depending on what suits your circumstances.

The next step which is even more important is not to repeat the same mistake of overspending again. There is a temptation to again consume the limit of credit card made available after payment of credit card bill through personal loan. Beware that if you repeat the history then the consequences can be disastrous as you will end up under unmanageable debt of having to pay the monthly installment of personal loan plus the payment of credit card bills. In such cases, credit card must be resorted to in case of severe emergency.

There are others who find themselves caught in credit card debt not because they overspent their limits beyond the repayment capacity but because they have either lost job or had to utilize credit card limit in meeting some emergency expense. Such people cannot resort to personal loans after being laid off as personal loans are offered on the basis of their monthly income. The best strategy would be to approach your bank, tell them the true story and request them to reschedule your payment plan. Remember its important that you approach your bank before they approach you. It will enhance your credibility and you will find them more accommodating to your situation. They do have payment plans for such people and they will surely roll out the best plan as per your circumstances. It is not in their interest to waste time and money in initiating legal proceedings against you. Therefore don’t shy from taking this step.