Settling that credit card debt
ON their own, credit cards aren’t bad. However, inspired by our materialistic needs, sometimes we take the privilege of having them a bit too far. Then there are other times when we might fall on hard times, and without sufficient savings to weather our financial storms, we see our credit cards as lifesavers.
Regardless of the situation, the convenience of having a credit card might bring with it inconvenient consequences — one of which is credit card debt.
Banker Vaughn Levy says, if poorly managed, it can cause irreparable harm to your credit score.
“Credit card debt is basically an unsecured financial obligation that a person has to one or maybe more banks or other consumer credit card-issuing financial institutions, which occur as a direct result of the individual failing to make payment for advances or payments that were made using the credit card,” Levy explained.
The banker said the initial effects of missing payments may be small, but outstanding balance attracts monthly payment fees as the sum gets larger. Continuing to default on your payments, the banker said, will result in your minimum monthly payment increasing to account for sums that you failed to pay over in recent months.
Additionally, there is the most crippling consequence of the interest rate on your account being increased to reflect the higher penalty rate, which can be as high as 35 per cent. This usually occurs when your account is 60 to 90 days past due.
“It can be quite daunting when you see the exorbitant figure that is now your balance after defaulting on your credit card payments. However, if you are serious about loosening the financial noose around your neck, then managing credit card debt is a step in the right direction.
“You can do this by either settling the obligation or making arrangements to pay,” Levy advised.
Settling your financial obligation will require significant lifestyle and other changes, and a good budget. While you may not be able to meet your financial obligation to your credit card issuer on your own unless you win the lottery, the banker said that you can consider debt consolidation.
Debt consolidation, Levy explained, is when you go to another financial institution to take out a loan to clear other debts you may have incurred, and pay only one low monthly payment that should be more manageable for you. You should know, however, that with debt consolidation, the processing of the application comes at a cost and in order for you to receive the approval, you must prove that you are able to meet these payment requirements.
Otherwise, you will have to consider making contact with your lenders so that you can negotiate a payment plan with them.
“It can be hard to face your lenders, especially when you have been evading them for a while. However, not only is it the responsible thing to do, but you can actually go in and explain to your bank the situation which may have resulted in your inability to meet your debt obligation in the usual manner. In your meeting, try your best to arrive at the best manageable terms for you, this way it increases your chances of being able to honour the new commitments, which will help you to restore your financial future and your name,” Levy advised.
The banker said, too, that other things you should consider, include changing your lifestyle if you have a lavish or expensive one, creating a budget and sticking to it, and throwing in any extra cash that you get, for example, insurance money, bonuses at work or inheritances.
“You should make every effort to repay your credit card debt because if you don’t, you would have created a bad credit history, which could limit your ability to borrow in the future. Apart from the damage bad debt will cause to your credit score, there is also the fact that even if you are able to borrow in future, your chances of scoring a manageable rate if you do succeed in getting a loan, is next to none,“ Levy said.
