How important is it to have a repayment strategy for your credit card outstanding or credit card bills?
Having a repayment strategy is one of the essential parts of the entire process when you are taking a loan. But even more so when you are dealing with a credit card expense because unlike other loans, if you are, say, buying a car and taking a loan, there is a lot of thought process which goes into it into the decision of buying the asset and then actually taking a loan for it because the available amounts are inadequate. On the other hand, a lot of credit card expenses are on the spot or on the spur of the moment expenses where people do not even think about it when they are making the spend. The credit card is like a convenience, which a lot of people use that they do not have cash in their pocket so they just swipe the card, make the expense and then later on when the bill actually comes, that is the time when they start thinking about the process of how they are actually going to repay. But before making any credit card spend specifically those spends, which are slightly larger in nature, one has to be very clear as to where the money for this is coming from. There are two reasons why one needs to do this; one is obviously the fact that the credit card system, if you go into the interest cycle, is going to be the most expensive debt that you will ever have taken. The second thing is that the repayment process normally will be less in the sense that you will not have too much time before the bill comes to you and you have to pay the amount.
So that is the most important thing which one has to understand that this borrowing is not a long term borrowing and you have to have some idea of how you are actually going to pay back the amount and if you do it before you actually make the spend it is better. Otherwise, this is going to be a long, drawn out process and a lot of things will suffer, including your credit score if you are not up to date with it.
How smart it is to take help from agencies who help you formulate a repayment strategy for maybe a credit card outstanding or a personal loan?
The first thing is that as an individual, either you understand these things or you pay attention to the details and if you do that, then you should have a proper or rather a better idea of what you are getting into. But there are times or there are a lot of occasions when people do not do that and they end up in a position where they cannot pay and then they have this pressure of paying back or their assets are likely to get confiscated and there are these calls which come in.
As an individual, for example, if this kind of situation is already there, then you need to evaluate the position as to whether you are in a position to frame a strategy to get out of this mess? If you cannot, then there are always external agencies who can help you in the process. So it is very clear that if you are not able to manage this, then seeking external help is also is very important in the sense that at least you will have a path out of it or a path forward, so that the problem which is there currently is resolved because you cannot avoid this kind of situation and trying to postpone it.
It is always better to seek help if you cannot manage it. And this by itself can help you a lot of times because then at least you will have a good strategy in place and a way out, which you can then just implement.
What are the few things that one should be keeping in mind before taking a loan, even before having a repayment strategy?
Before you even take a loan, you need to research the various options which are there in front of you. So do not just go and select one option based on a single feature which you think is attractive because that is what usually happens. People just see one feature, sometimes an interest rate which they think is lower and then they just go and buy the product. Always before you take a loan, research all the options which are there in front of you.
Second, do a little bit of homework also because of your individual position are you able to get a better deal in this? This could be on account of several factors. One of them could be that if you have a good credit score, then obviously you will get a loan at a cheaper rate. Second, it could be that you have a very good relationship with your banker and in that case also, you should explore the option if you are getting a good deal for your loan.
The third thing, which also one needs to take into consideration, is why are you actually taking the loan and the time period for which you are going to take the loan because now it is just not the case that you take a loan and it comes for a fixed time period. So if you are taking a car loan, then also think about the fact whether you can repay it in three years, five years, seven years, what is the right thing, the right time for you, what is the kind of amount which is right for you.
Similarly, for a housing loan, you have not only time options, you also have the flexibility in terms of when you are going to need the money. So that is very important. In a high amount loan, it is not that the whole amount could be required upfront. There could be various time phases, especially when you are taking a housing loan, when the money might be required. How are you going to draw down the limit which has been given to you and then what is the entire repayment plan that all these things need to be considered before you actually go and take the loan?