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How to repay credit card debt

without financial stress
The benefits of using a credit card in day-to-day life can be many, but only provided
it’s used with extreme financial discipline. Every flexibility and convenience is tied to
timely repayment of the credit card bills, and in its absence, the credit card ends up
as a millstone around your neck.
Late payment or default in credit bill payment can negatively impact the credit score
of the cardholder. Every delay in repayment before the due date comes with high
interest on the late payment. Non-payment of a minimum due amount may also
invite a hefty penalty by the card issuer. So, despite serious financial constraints, it
is imperative that credit card users don’t miss the credit card bill payment. So how
do you manage bill payment in a crunch situation when finances are tight?

Here are some ways you can keep financial stress at bay and repay credit card debt
with minimal long-term implications on your credit record.
Negotiate with the lender
Sometimes there may be situations when you may have taken all possible
precautions and yet find yourself in a bind with no way to repay the credit card debt.
In such a situation you don’t need to lose hope. Assess your financial situation. If
you feel that you will be able to reinstate the card payments after a few weeks or a
month, convey the message to the issuer. Issuers may give you a chance to convert
your debt into an easy EMI or refrain to take any adverse action against you
considering your position.
Use a low-interest loan
Credit cards may turn out to be very expensive as they come with a very high APR
of as much as 40% per annum. While credit card EMIs allow you to pay back in
instalments, they also have a high interest rate. Repaying a debt with such high
interest rate can make your financial situation worst. To avoid such a situation, if you
feel that you won’t be able to repay the credit card bill within the due date, you
should explore other low-cost options to arrange the money and repay the credit
card due.
If you have security to mortgage with the bank, you may apply for a loan against
securities such as a loan against FD, mutual funds, or shares to get a quick loan to
repay the card bill. Loan against an FD can be especially beneficial as the interest
rate would be at par with home loan rates or even lower. Moreover, as the lender
already has the collateral and your KYC, the processing would be fast. You may
consider a personal loan to repay the card bill.
A personal loan can be applied online, and the processing time is also quick.
However, it would be a more expensive option compared to a secured loan, though
much less expensive compared to what the credit card company will charge you.
Bear in mind to check aspects such as the rate of interest on the loan, charges
associated with it, repayment flexibility, etc., while taking a loan to clear credit card
dues.
Liquidate an existing investment
As a last step, you may consider liquidating one of your investments to repay the
credit card debt before the last due date. Try to liquidate such an investment whose
return is lower than the interest levied by the credit card company and the tax
obligation on the ROI is low and always use it first to repay the debt that costs you a
higher interest rate. You may liquidate a low-interest FD, partially redeem a debt
fund or book partial profit from an equity fund that has given you a good return in the
long-term and has less chance to offer a greater return. The returns you will earn on
investments like FDs will be much much smaller than the penal interest you will have
to pay on outstanding credit card bills. The added loss in credit score will take
months to improve, and the adverse credit report take remain for years. You can
always reinvest in such an instrument after a few months when you have sufficient
funds available in your hand.
Whenever you spend money using your credit card, you should be ready with a
repayment plan that can help you repay the bill on time in full every time. Avoid
spending money through your credit card if you are unsure about the timely payment
of the bill. A credit card is value for money only as long as you treat it as a deferred
debit card and have enough funds in your bank account to repay the bill before the
due date.

How much of your income should

you invest in insurance?
Whenever one starts earning, the first thought that crosses the mind is often about
savings. From the time one starts to have a permanent source of income,
maintaining the balance between savings and expenses becomes a concern.
Sanchit Malik, Co-Founder, and CEO of Pazcare says, “An investment is an asset,
which is done to generate income. It could be ranged according to every individual’s
needs and any amount can be invested. It is generally done in mutual funds or the
stock market. Investment planning is introduced afterward.”

People nowadays think about investing some portion of their income. However, the
only area where a person doesn’t invest properly is their health. “Investing in
insurance and health care is often not done on a priority basis because it will not
generate any real income, but will be used in emergencies,” says Malik.
Industry experts say the option to invest in health insurance is fairly new to the
market because people are still reluctant to invest in the same. Having said that, the
benefits of investing in good health insurance are far greater than not investing at all.
Experts believe health insurance should be considered as something towards which
some of the major portions of one’s savings or investment should go. According to
Malik, around 10 per cent of an employee’s earnings (monthly income) should go
towards their investments.
Keep in mind, the right insurance cover, for you and your family, will not only help
you in case of any medical emergency but will also insure you for any sudden
medical needs as well. Along with that, a good policy should also include expenses
like the ambulance cost and pre-and post-hospitalization charges, etc. Experts say
these will be appreciated in the long run as they will ultimately make the whole
hospitalization process much easier and stress-free.
If you are confused about what kind of insurance to get first, experts say one should
start with a health insurance policy. “Starting with health, followed by Personal
Accident and Term Life Insurance should be the sequence,” suggests Malik.
Personal Accident comes in really handy at times but fails awareness while the life
insurance policy is also important. Having said that, keep in mind that if you are at
an early age, just started your career, and have a group health insurance cover from
your employer and you do not have any dependencies, you could put opting for life
insurance on hold for the time being.

Types of mutual funds and the

risks they carry
We all grew up watching our parents and their parents put all their extra money into
fixed deposits (FDs). However, FDs no longer shine as before. In recent years,
mutual funds have emerged as a frontrunner among investment options. And over a
duration of three years and above, debt mutual funds are more tax efficient due to
indexation benefits. Indexation helps an investor to adjust inflation while calculating
the long-term capital gains, which lowers the taxable income.
Short and long-term goals
However, it’s essential to tag your investments to a short or long-term goal. You
don’t want to invest the money you need for your short-term needs in a long-term
mutual fund that you’re using to build wealth.
Within debt funds too, there is a category that could be considered to help achieve
your short-term goals—liquid funds. They are a class of debt funds that majorly
invest in short-term fixed interest generating money market instruments like
commercial papers, treasury bills, etc., with a maturity not exceeding 91 days. Now,
having said all that, you should also know the risks associated with these types of
investments.
Risks with mutual funds
Market risk: It simply means the risk which may cause losses for an investor due to
the poor performance of the market.
Concentration risk: This means the underlying portfolio has too much exposure to a
particular instrument or securities and fails to diversify.
Interest rate risk: The returns earned from debt funds are inversely proportional to
the interest rates prevailing in the economy. An increase in the interest rates during
the investment period may result in a reduction of the price of securities.
Credit risk: It is the risk that the issuer of the scheme may be unable to pay the
promised interest. So, always check the credit ratings. An AAA rating is the ‘highest’
rating and C is a low credit rating, resulting in credit rating downgrades and fall in
NAV. A fall in rating may be due to the deteriorating financial/governance profile of
the firm in which the fund is invested, resulting in credit rating downgrades .
Liquidity risk: Liquidity risk refers to the inability to liquidate an asset at the desired
price. Liquidity risk can occur due to demand and supply conditions, rise in interest
rates, change in the credit rating of the underlying instrument. The best way to avoid
this is to go for a diverse portfolio and select the fund carefully. Invest in a diversified
portfolio that comprises equity, debt and gold asset classes.