Wednesday, 11 January 2017

Ways to clear holiday debts

Holidays are fun time! They are an opportunity to spend time with family, unwind and explore new places. Lots of times holidays can coincide with festivals which can double the joy and fun but also double the expenditure. India is a country with myriad festivals and the last quarter of the year is packed with them. So we have Durga Puja, Diwali, Thanksgiving, Christmas and of course the perfect end with the winter vacations and the New Year Celebrations in the last three months of the year. So while trying to juggle the fun, expectations of the family and the finances we can find ourselves face to face with holiday debt.
How to Clear Holiday Debts?
If one has not budgeted well or gives in to sudden temptations or some plan go awry we may be forced to spend more than we intended on the credit card. So even if it is a relatively low interest credit cards (I say relatively low because all credit cards charge exorbitant interest rates on payment delays or overdue amounts) you still can have piled up debt that requires immediate action.   
Ø  Accept the Problem:
Living in denial will not help. So the first step to resolve the issue is to accept it. Rather than waiting for the situation to become bad it is better to be pre-emptive and take remedial action as soon as you realize that you have spent more than you intended to or budgeted for the holidays. A high credit card bill (higher than what usually it is), exceeding the credit limit, resorting to borrowing are all signs of trouble. So it makes sense to be prompt in action than wait for a situation where the credit score is impacted and you are burdened with high interest costs. Missed payment, high credit utilization ratio etc impact CIBIL score calculation.
Ø  Make a Plan:
Once you know that things are not as smooth as they should be it is time to get a plan in place. So get a plan ready; identify what are the problems areas and figure out a practical yet effective plan. The plan should be workable even if it takes a while to reach the goal. No point having an ambitious plan if it is not practical. If the debts are too high then do not make a plan that involves repaying the debt at the earliest yet in a feasible way. A good way would be to pay minimum amount due on all cards even if you are unable to pay the entire amount immediately. This will save you from being a defaulter and also the penalty charge for non-payment though charges on overdue would still apply. 
Ø  Start With the Highest Interest Debt:
The biggest problem with holiday debt apart from the fact that is a mental burden is the financial burden it poses due to the interest that is piled on the unpaid amount. Credit cards are one of the most expensive debts and if you have taken a personal loan for footing the bill for your holiday expenditure then remember those are also pretty expensive. In such a scenario one must start with the debt that has the highest interest cost for obvious reasons and then go on the next most expensive and so on. Of course if you figure out a way to pay all the debt nothing like it but if you are unable to do so then pay the most expensive debt first.  
Ø  Don’t Pile on More Debt:
When trying to repay your debt there is no point trying to pile on more debt. Often credit cards are used to pay monthly bills and dues; this might be unavoidable in certain circumstances. However if one has the option then one must refrain from using credit card for these payment too and pay from the regular bank account or cash. Needless to say buying unnecessary things, shopping and being indulgent should be avoided; where ever possible defer non-essential expenditure.
Ø  Look for Options:
There is no single way to repay holiday debt and no best way. There might be multiple options that can be used to overcome this situation and one or more can be used depending on individual’s preference and choice. One could opt for balance transfer option where the unpaid balances are transferred from a credit card which charges higher interest to a card which charges a lower interest rate.  This will help you save some interest cost. You could also talk to the existing card company to convert your dues to EMIs. There is option of dipping into personal savings, using a fixed deposit or some other way to pay these dues. However any option must be used after carefully evaluating its benefits and losses.


Hopefully you do not have any holiday debt piled up but if you have the above discussion can help you get out of it. 

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