Debt Restructuring- A way out of the vicious debt cycle of cards

Credit cards is one of the breakthrough invention in credit financing instruments. If used properly it gives extreme flexibility of spending and an interest free credit period. It also has the safety of not having to carry too much cash around while traveling.

Unfortunately it also has the luring power of dragging the consumer into a debt trap. If any   consumer starts utilizing his full credit limit and then makes only minimum payments due, he is dragged in the debt trap where he not only pays exceptionally high interest (between 1.99% to 3.00% per month compounded daily) but also because of the very nature of minimum amount due is not able to clear his principal for a very long time. The major portion of his minimum amount due will just service his interest for the month.

 The way out of this debt trap is through debt restructuring using personal loans.

 What is a personal loan?

It can be defined as an unsecured loan given to any individual. There is no security collected against the loan amount. This is one of the fastest growing retail lending product in India.

Most individuals who have a credit card which is more than one year old and does not currently have any late payment charges will get a personal loan based on his credit card history.

 How will personal loan help ?

The consumer should try and take a personal loan and clear all his cards outstanding. Thereby he will

a.  Reduce his interest cost significantly

b. Clear his debt over a fixed period of time through Equated monthly installment(EMI)

c. Retain his card as an emergency reserve to fall back on.