December 19, 2016 | Posted by: Carlo Miguel Castañeda | Credit Card
December 19, 2016
Overextending yourself when it comes to credit card use is something that happens. Sometimes, it’s an unchecked night of spending. Other times, it’s because of an actual legitimate financial emergency that spirals beyond your control.
Dealing with your credit card bill becomes the forefront of a lot of your financial concerns because eliminating debt is always the best way to go. Take a deep breath, let it out, and begin. If you’re unsure where to start, here are a few points that can help you out.
The 90-day limit
There’s a 90-day limit on your account when it’s past due that you should be aware of. Once it passes this point, it’s a permanent strike on your credit record – which all banks have access to. This means that banks will be hesitant to grant your loan application, or worst case, you’ll have to use cash for everything for the rest of your life.
Of course, once your account goes past its due date, you’ll have a tougher time with late repayment fees and compounding interest. You could be charged as much as an extra 6.5% to 10.5% of your total balance.
Paying the minimum
You’ll already cleared by your bank to see whether you can pay your balance on time or not which is usually 1% to 5% of your total current balance. While it’s one way to stay on top of your payments, the minimum doesn’t help when it comes to the interest on the remaining balance.
You’ll end up paying more than you need to if you only pay the minimum balance. It’s ideal to go beyond the minimum. Shave off at least one-third of it each time you pay if you’ve got a balance of Php 10,000 due.
Paying above the minimum doesn’t mean you can use the card again. Avoid credit card use until you’ve paid off the entire balance.
Another option is a balance transfer which consolidates debt on one card to a newer card with lower interest rates. Your new issuer will have to agree to pay the debt from the original lender on your behalf and you’ll pay them back at a lower interest rate. This might allow for more breathing room.
Terms for balance transfers can range from 3 to 24 months with interest rates as low as 1.91%. Bear in mind that you’ll need to have a good standing with this bank in order for them to agree to these terms.
A last-ditch option is to have your account restructured and providing the bank with evidence that you can pay back your debt over a given amount of time. Have the courage to negotiate, and the intent to repay, and you can do so within terms of 12 to 60 months. Banks are willing to have their clients restructure repayment terms to avoid default listing.
Paying off massive debt means having to focus on your finances but it also teaches you a lesson about the consequences of overextending yourself. If it was a situation that couldn’t be helped, then you’ve at least proven to yourself that you’re capable of properly budgeting to allow for debt payments.
Once it’s over, your budget for debt payments can become your savings allocation. You won’t even miss the money, seeing as you’ve gotten used to operating on the debt budget you had.