How I saved 15,000 Dirhams by reducing Credit Card Debt-My strategies!

Reduce your Credit Card Debt-Ideas,Tips

I have previously written about the Great Credit Card trap and How to reduce your credit card debt!

In this post I will write about on how I reduced my credit card debt/outstanding and saved around 15,000 Dirhams.

Nowadays, all you ever find in the marketing materials of the giant Electronics retailers and supermarkets  is the Easy Payment Plan from many banks. In most of the cases, they promise to have a 0% interest on the payment for upto 6 months and in some cases 12 months. Every retailer, every shop now accepts credit cards as a means of the payment.

Customer gets to have the items like electronics, latest mobiles, gadgets and so on. HAPPY! One hitch is this is that, if you do not settle your outstanding on the next due date, you end up paying interest rates of upto 3% per month or 36% annually.

You must understand that, banks make huge money from credit cards! This is done through various charges, fees, interest, Finance charges(Islamic banks), membership fees, over-limit fees and many others. The Consumer, if not smart enough will easily get into the trap.

However there are few ways you can skip all the cons of credit cards and still enjoy the benefits. Some of you might already know these ideas.

Below are my ways of reducing credit card debt. Follow if possible:

1. Pay off the entire credit card outstanding on or before the due date

For a bank, a customer who pays minimum amount due(usually 5% of the outstanding) is an asset! He/She is the one who pays interest to the bank. What I do is absolutely opposite to what the bank wants. I pay off the entire 100% outstanding every month it is due. This way I do not pay any interest to the bank. It makes my life easier!

2. Instead of Credit Card debt, consider a Personal Loan!

The interest rates on credit card can sometimes reach upwards 36% annually. So, if at all you need to take debt, consider Personal Loans. They are cheaper and approval times are also quick. Interest rates on a salary transfer loans can be as low as 3.75% Flat.

3. Consider Balance transfer from higher interest credit card to lower interest credit card

So you have multiple credit cards. And have trouble clearing the outstanding. Why don’t you transfer balance from one credit card to the other? This way you could dodge the higher interest rates on credit cards. However, please note that this can not happen forever and balance transfer is subject to approval from the bank.

4. Use credit cards only for most necessary purchases

I usually use credit cards to pay for DEWA Bill, Etisalat bill(for internet, recharging etc), Airfares, Groceries and some necessary shopping. I do not stand in the queues to pay my bills like many as they are automated. Many are not aware that these can be automated. This can be a real boon if you use it effectively. Only use your credit card for basic transactions!

5. Easy Payment Plans-Avoid them!

How enticing are the easy payment plans from various banks! They are mostly ‘0%’. However, they may not be the same as they claim to be. In most cases are riddled with processing fees etc. So be careful when you opt for them.

6. Discipline Yourself and Live On Less(LOL)

Debt is a double edged sword unless you are careful. Also note that debt is inevitable these for working class people like me. I have a Housing Loan, A personal loan and 2 credit cards. I use these to generate more money. Do not take a personal loan for vacation, marriage or such plans which do not yield returns. Living frugally will help you save small dirhams here and there! I call it LOL-Live On Less.

7. Redirect excess money to pay off debt whenever you have it

If you get a bonus or have received a cash gift, make sure that you direct it towards lowering your debt, especially credit card debt.

So when I calculated interest on both my credit card for the last year(2012), I would have paid in excess of AED 15,000 only in interest payment towards the credit cards, which I ended up saving in other forms. (That’s a rough calculation!!)

So when you are less in debt, you will live more happily. Keep Saving and keep smiling!

Share your ideas on how you reduce your credit card debt through comments below or here! I will be glad to know if they helped!