What is Credit Card Debt and Smart Debt Management Strategies

Recent surveys reveal that 65% of young Indians (aged 20–30) neglect monthly budgeting and 69% overlook fundamental debt management. Instant gratification, fueled by trendy phrases like ‘YOLO’ and ‘FOMO,’ has ballooned credit card spending and dues by 30%. In this generation which believes in ‘buy now, pay later,’ if you are looking for how to use a credit card the right way and avoid excessive debt, this article is for you.

Let’s explore strategies for credit card debt management and responsible swiping.

Understanding your credit card debt

The money you owe for purchases you have made is your credit card debt. Let’s break it down. You use a credit card and receive a statement at the end of the billing cycle. You can settle this bill either in full or make a minimum payment. When you don’t make the entire payment by the due date, the balance carries over to the next month. This becomes your credit card debt on which interest is charged.

To truly understand purposeful debt management, you should know some essential terms.

• Annual percentage rate (APR) – This is the yearly interest rate applied to the balance carried forward. It’s the cost of borrowing money on your card. A higher APR means more interest.

• Minimum payment – This is the lowest amount you can pay to settle your bill. Nevertheless, making just this amount will only attract more interest on the remaining balance.

• Credit limit – This is the maximum amount you can borrow against your card. The issuer sets this ceiling based on your creditworthiness.

Here’s a little nugget of wisdom for debt management – keep your credit utilisation ratio (calculated by dividing credit usage by the credit limit) below 30%.

Credit card debt traps: Understanding the triggers

Managing finances in your 20s and 30s can be a constant battle. Let’s explore some reasons that make debt management challenging.

• Financial literacy gaps – Interest rates, minimum payments, or how small charges can lead to significant credit card debt—aren’t always discussed. Ignorance here is not bliss; it’s a one-way ticket to falling into the credit card trap.

• Crushing cost of living – The prices of housing, education, and even necessities are growing rapidly. This leaves less wiggle room in your budget, making it tempting to rely on credit cards to bridge the gap between income and expenses.

• Economic uncertainties – Job insecurity and unexpected emergencies like medical bills or car repairs can further push you to lean on credit cards.

There’s more. Peer pressure, impulse purchases, and social media comparisons also contribute to the conundrum. Coupled with high APRs and minimum payments that barely cover interest, you are trapped in a cycle of credit card debt.

Strategies for smart debt management

Here are some strategies to tackle credit card debt:

• Budgeting techniques – Create a budget. Track your income and expenses to identify where to cut back. Debt management tools like the 50/30/20 rule (50% needs and debt repayment, 30% wants, and 20% savings) can help you allocate your finances appropriately.

• Repayment plans – Opt for one of the following strategies for debt management –

  • Avalanche method – Start by paying off debts with the highest interest rates. It saves money on interest charges in the long run.

  • Snowball method – Prioritise paying off the smallest debts first, regardless of interest rate. It provides quicker wins and boosts motivation.

  • Debt consolidation – Combine multiple debts into one loan with a lower interest rate.

• Picking the right credit card – Compare and choose a card with lower APRs, and avoid cards with high introductory rates that jump later. Consider reward programs aligned with your spending habits. You can consider the FIRST Millennia Credit Card, which ticks all the boxes.

Why FIRST Millennia Credit Card?

The FIRST Millennia Credit Card from IDFC FIRST Bank is designed for millennials like you who want to take control of finances and live the best life—all without breaking the bank. With low rates of interest and rewards that align with your spending habits and distinctive lifestyle, this lifetime-free credit card stands out as one of the best credit cards for debt management.

Here are the benefits of using this credit card –

• Rewards earned—1 reward point for every Rs 150 spent— that never expire

• Welcome voucher worth ₹ 500 on spending ₹ 5000 or more within 30 days of card generation.

• 5% cashback (up to ₹1000) on the transaction value of first EMI done within 30 days of card generation.

• Enjoy up to 20% off at over 1500 partner restaurants

• Monthly 25% discount on movie tickets through Paytm

• Benefit from a 1% waiver on all fuel transactions, up to Rs 200 per month

• Get 4 complimentary railway lounge visits per quarter and complimentary roadside assistance worth Rs. 1,399

Apart from the above credit card benefits, you can leverage this card for efficient debt management as follows –

• Low APR starting from 0.75% per month

• Convert purchases over Rs 2,500 into convenient EMIs through the mobile app

• Transfer outstanding balances from other cards at a lower interest rate

So you can treat yourself and start managing your debt in style with the FIRST Millennia Credit Card.

The key takeaway

Knowledge is indeed power! Good practices for your credit card debt management can pave the way for a brighter financial future. So, take control, make informed choices, and watch your credit card become a tool for empowerment, not a burden.

Disclaimer: This article is published in association with ISFC First Bank and not created by TNM Editorial.