Navigating Credit Card Debt: Strategies for Monthly Salaries Below Rs. 12,000

Understanding the Challenges: A Monthly Salary Below Rs. 12,000

Dealing with credit card debt can be overwhelming, especially when your monthly salary is as low as Rs. 12,000. You might ask, 'Can I repay this debt?' The answer is not straightforward, but there are strategies you can employ to manage your situation effectively.

Steps to Manage and Resolve Your Debt

1. Talk to the Bank or Credit Card Issuer
Begin by contacting your card issuer. They will often offer you an installment plan that can spread the debt over a longer period. This approach can reduce the monthly payment burden significantly. Make sure you adhere to the EMI (Equated Monthly Installment) payment schedule without fail.

2. Seek Financial Support from Family Members
Approach trusted family members or friends who can offer you small installment payments. Combine these smaller payments to settle your card outstanding. This method can help you clear the debt quicker and with less stress.

3. Create a Repayment Plan
Divide the total outstanding amount into manageable monthly payments. For example, if you get Rs. 20,000 from five family members, you could repay Rs. 500 to Rs. 1,000 each month. By doing so, you should be able to resolve the debt in 10 to 20 months.

Mathematics of Credit Card Debt

1. High Interest Rates
Credit card interest rates can be quite high, often above 3.5% per month, plus 18% GST. This means that for a Rs. 1 lakh loan, the monthly interest alone could be Rs. 3,500 plus Rs. 630 in GST. Even if you pay 5% of the outstanding amount, a significant portion goes towards interest and GST, leaving very little to reduce the principal.

2. The Calculation
Starting with a Rs. 1 lakh balance, the interest and GST would make the total outstanding Rs. 1,04,130. Paying 5% of the outstanding amount each month would mean Rs. 5,206 due, of which Rs. 4,130 goes to interest and GST. So, the principal reduction is only Rs. 1,076 per month. This highlights the urgency to find a practical solution.

Practical Solutions

1. Request for Installment Plan
Request the credit card company to convert your debt into a loan repayable in 60 EMIs at an interest rate of 17-18% per annum. This would result in monthly installments of approximately Rs. 2,500, payable over five years.

2. Avoid Defaulting
Non-payment or defaulting is not a wise option. It will damage your credit score, making it hard to secure loans or credit cards in the future. Instead, focus on adhering to the EMI plan and make regular payments to stay on track.

Conclusion

Dealing with credit card debt is challenging, especially when your salary is Rs. 12,000 or less. However, by taking proactive steps, such as seeking installment plans from your bank and turning to your support network, you can manage and resolve your debt more effectively. Remember, staying on top of your payments is crucial for your financial health and future borrowing options.