Credit card benefits: Low APR can help you clear outstanding dues faster

Credit cards can be a fantastic tool to maximize your budget, offering unparalleled rewards and benefits. However, it's important to remember that timely repayment is key for these advantages not to become liabilities. Unpaid debts due on credit accounts can unfortunately quickly spin out of control. Here we will explore how you could take steps towards managing this debt without hindrance or further complication if such a situation arises.

Low APR can help clear outstanding dues faster

Credit cards of most banks have an Annual Percentage Rate (APR) ranging from 36% to 42% p.a., which translates to a monthly interest rate of 3%-3.5%. However, certain credit cards offer the feature of dynamic APR. For example, IDFC FIRST Bank Credit Cards offer you an APR of 9% to 42% p.a. A lower APR can help you save on interest costs and clear the outstanding dues faster.

You can also use the balance transfer facility to transfer your outstanding dues from another credit card with a higher APR to your IDFC FIRST Bank Credit Card. You can then use the lower APR on your IDFC FIRST Bank Credit Card to save on interest costs and make the debt payment. As an added benefit, IDFC FIRST Bank comes with regular cashback offers from for customers availing the balance transfer facility. 

Credit card rewards and benefits

IDFC FIRST Bank Credit Cards offer a host of rewards and benefits, along with a lower APR and balance transfer facility. Some of these include:

1. The credit cards don’t have any joining and annual renewal fees.

2. They offer up to 10x reward points (which never expire).

3. Reward points can be used for paying for online transactions or redeemed for gift vouchers @ Re 0.25 per point.

4. Discount and cashback offers from time to time.

5. Conversion of specific transactions or entire outstanding into loans with easy EMIs, with flexible tenure of up to 36 months.

6. Up to 20% discount on dining at 1500+ restaurants across India.

7. Secured credit cards against a fixed deposit for people who don’t have a CIBIL score or income source. The credit limit can be up to 100% of the FD amount.

These are some of the many credit card benefits. But what if someone is caught in a credit card debt trap? Here are some ways to pay off the debt if you get trapped in one.

5 Ways to get out of credit card debt 

If you are caught in a credit card debt trap, here’s how you can get out of it.

1. Acknowledge the problem

The first step to finding a solution to any problem is to recognise and acknowledge it. So, to get out of a credit card debt trap, first recognise it and acknowledge it. If you have multiple credit cards with outstanding, do the following:

• Write down the names of the cards on a piece of paper or an excel sheet.

• Note the outstanding amount against each card and the due dates.

• Calculate the total outstanding amount for all cards.

2. Prioritise essential debt payments

Now that you know the outstanding against each card, and the total for all cards, it is time to prioritise the repayments. You can consider one of these steps or a combination for repayment:

• Prioritise the repayments of credit cards that have a higher APR. The higher the APR, the more interest you have to repay and the longer it will take to clear the outstanding.

• Prioritise the repayments of credit cards with the lowest outstanding amount. It helps you to clear the total outstanding for these credit cards and later focus on the ones with a higher outstanding amount. The lower the number of cards you have to focus on, the better it helps to manage the repayment.

• Use the balance transfer facility to transfer the outstanding from credit cards with higher APR to credit cards with lower APR to save on the interest cost. It will help you consolidate the outstanding on multiple credit cards into a single card.

• Convert the outstanding amount into easy EMIs at a lower interest rate.

3. Prepay and automate

If you have any additional free cash flows, use them to make prepayments of outstanding debts. The source of additional free cash flows can include salary bonus, raise, maturity proceeds from short-term investments, etc.

Automate the repayment of loans using the auto-debit feature. It ensures timely payment and helps you avoid any late fees, penalties, etc. Preferably, choose the repayment date within 3-5 days of getting your salary. That way, you can make the debt repayment first and then use the remaining money for your regular expenses.

4. Review your monthly budget

While making your monthly budget, always make a provision for debt repayment. You have already made a list of the outstanding on all cards and have also decided the priority of the repayments. Based on this, set aside the amount in the monthly budget and then use it for repayment.

You can use a method like 50/30/20 budgeting which categorises your income into the following 3 spending categories:

• 50% towards needs

• 30% towards wants

• 20% towards savings and investments

You can include the amount for debt repayment in the 20% category meant for savings and investments.

5. Cut back on unnecessary expenses

While making your monthly budget, sometimes you may not have enough money to make a provision for debt repayment. In that case, you will have to identify unnecessary expenses or those that can be postponed. 

Here are some ways to avoid or cut down on expenses:

• Stop dining out for some time and relish home-cooked food instead.

• Avoid going to multiplexes; instead, watch movies on DTH channels.

• Purchase garments and personal accessories once a quarter, preferably during a sale.

• While travelling to the office, carpool with colleagues to save on fuel costs.

• Unsubscribe from certain paid subscriptions like OTT platforms, music and gaming apps, online magazines, etc., for a while till your debt is repaid or is in control.

• For one year, instead of going for an international family vacation, take a domestic vacation. If you take domestic vacations every year, choose a low-cost destination or skip the vacation for one year.

Conclusion

A combination of some or all the above options will help you save a considerable amount of money. The saved amount can be used to repay the credit card outstanding. Getting into a credit card debt trap is not difficult, it just takes time and discipline. The five steps outlined above can help you get out of one. Once you get out of debt, use your credit card responsibly and ensure timely repayments so that you don’t ever fall into the same trap again. 

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.