How to use credit card smartly? Top 5 tips to avoid the debt trap

Credit card spending has reached pre-pandemic levels on the back of a rise in online shopping and OTT consumption, according to HDFC Bank. No doubt, credit card helps its users in increasing purchasing power, building credit scores, etc one should also be responsible while using the card to avoid a debt trap.

Here are the top five tips that can save you from falling into a debt trap while using a credit card.

Prioritise your needs

HDFC Banks suggests that credit card users should review itemised expenses and categorise them into various categories such as – essential, semi-essential and non-essential items. Luxury items can be categorised as non-essential items while the items that are not critical for survival but add to your comfort are categorised as semi-essential items.

According to the bank, avoiding non-essential and semi-essential items to facilitate debt repayment can have a long-term positive effect on your financial condition. 

Keep reviewing your payment obligations

Make a list of all your monthly minimum payments and their respective due dates. This will give you a complete picture of all your obligations and think about how to allocate the funds you have available for repayment. According to the bank, a detailed and meticulous review is the first step to solving your current debt problems, bringing you closer to a viable solution.

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Request card issuer for extension of due date 

In case of any unexpected expenses during a given month, contact your credit card issuer to check if the due date can be extended. According to the bank, this will give you some much-needed flexibility and help you get back on track faster- without damaging your credit score.

Make behavioural changes

To achieve small cost reductions, one must introspect spending habits and make the necessary behavioural changes. For instance, by reducing the frequency of eating out, one can save a lot of money on food. 

The bank suggests that one should prepare a monthly expenditure plan and calculate the extra amount one can save by making behavioural changes to realise how much money can be saved over time.

Build an emergency fund

An emergency fund helps you navigate tough times without having to fall back on a loan. For example, if you meet with an accident and are out of work for a few months, you’ll need money to sustain yourself. With an emergency fund, you can comfortably manage your expenses, including credit card bill payments.