20 year olds are the soft target for credit card issuers. The employers want a young and dynamic crowd at the workplace and may offer you various incentives to stay on your job and this attracts the credit card issuers. It is easy to get entangled in the chains of debt and one needs to take precautions at the earlier stage to not go overboard on using the credit card. Though credit card is a good way of starting a line of credit and if you pay all your bills on time, you will have a good credit score. The credit card issuers keep an eye out for people who make good money and sweet talk you into believing that the deal being offered to you is the best that you can get in town and will tell you that it has the lowest interest rates and easy instalment options are available and you will get money back on all the purchases. You will not know any better and take up the deal without comparing with other credit cards available in the market.
When you get the credit card in hand, you go treat yourself with all the fancy electronics that you have been waiting to get your hands on and splurge on the card by going for expensive dinners. You start small and you convince yourself that it is a small amount and you can pay it back soon. When your monthly statement comes, you know that it has gone way too high and there is no way of repaying the amount at one shot. One thing leads to the other and the next thing you know is that you are paying off just your minimum amount due and you will be stuck in the vicious cycle of debt. When your credit card debt is high your CIBIL score goes down till you clear out the outstanding balance. The best thing is to use the credit card only when you are sure that you can repay it at the end of the month or not have one at all.
Acknowledge the credit card problem
The first thing to do is acknowledging the problem that you are in a credit card debt and not to hide your head in the sand like ostriches. Avoiding a problem will not make it go away. When you get your credit card statement, the first thing that you need to do is to calculate the outstanding amount that needs to be paid. Talk to the issuer and check if the repayment term can be relaxed. The lenders hate to let go of their customers and will find a way to help clear off your credit card bill. They will hate to lose you to their competitors and hence will find a way out for you.
Resolving your debt
But if the issuer is refusing to help you, then you can consider liquidating some of your assets. You can also consider taking a loan from your family and friends to pay off the dues. If you do not have an asset that you can easily liquidate and if there is no one in your friends and family circle to approach, then you can take a personal loan. The interest rate on personal loan is lower than the interest rate that you will be paying on your credit card. You can also consider transferring the debt to another card which is not charging you a high interest rate and has relaxed repayment terms.
Credit Card Settlement can ruin your Credit Score
Is your credit card spending now coming back to get you? Are you now finding it difficult to make timely payments and looking at settling instead? Think again, any settlement offer will be good for that moment, but taking that settlement may cause you to have issues with getting credit in the future. Settlements generally provide you with a cheaper way of paying the creditor an amount that will make the credit disappear, by closing the credit card or loan account. But having a settled status against a credit card or a loan account has a very negative impact on your credit score. The credit score will drop by many points again this depends on the previously score.
So actually how does your credit card settlement affect your CIBIL score, isn’t closing one of your loans a good thing? yes is it. But a settlement offer is made by financial institutions only when there’s a default in payment and at least 6 months defaults will lead you to get a settlement offer in the first place. For each monthly missed payment, the bank or financial institution will need to report the same to the credit bureau, in this case CIBIL and they will in turn cut points off leading to a low score. The longer the default payments run the lower your score gets. Once a bank initiates a settlement process and an agreed amount is decided upon the bank terms the loaned amount as settled or written off, seeing this CIBIL will take note that past dues have not been paid and therefore will bring down your scores further even though you have closed one loan against your name. This is considered a black mark on your record and last for a period of 7 years, if you plan to apply for any loan in these 7 years it will be very difficult with a low CIBIL score. Making sure you maintain a good track record and pay EMIs regularly will help keep your credit score high and give you a good credit report as well.
Keep a tab on your expenses
If it is the lavish lifestyle that you have gotten used to, then budget your expenditures and stop carrying your credit card altogether. If you are heading out for parties over the weekends then carry as much cash as you need and keep the credit card and the debit card at home. You must understand that you have bills to pay before going off and spending all the money on unnecessary things. The first thing you can do every month when you get your salary is to make all the payments and then budget the rest of your month and to not add on to more expenses on the credit card. And when you have managed to clear all your credit card dues, pull out your CIBIL report and check if things are in order. But take out the CIBIL report after a month after you have paid all the outstanding dues. It is important to check your CIBIL report annually. You must look out for discrepancies and correct them. A bad credit score might be a major reason for your loan rejection.
Tread with caution
If you are on a verge of taking a credit card, look for their repayment terms, the processing fee and their annual fees and for the rate of interest. If you are using the credit card, make sure you have enough funds by the end of the month to repay the outstanding balance. Don’t carry forward your balance to the next month as it might keep repeating and you will not have enough money to repay the amount due. This will lead to a bad credit score. Keep an eye on your CIBIL report and find ways to fix it. Credit card in itself is not a bad thing, the way you use it matters. If you are using the card recklessly and are not clearing the dues, then it will negatively affect your credit score. Also remember it is not the money you have that you are using through the credit card, it is the money that the lender is letting you use to meet your immediate and urgent financial requirement.
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