If there is anything worse than getting into a debt trap, it is bad debt advice. Bad debt advice may not only lead to larger financial worries, it can lead people into a cycle of debt problem that becomes near impossible to handle. The inability to handle such problems may have larger consequences like a debt ridden person facing mental health issues such as getting into a depression. It is thus advisable to be discerning about debt problem solutions that you may come across easily.
In this modern age of hyper-connectivity, the first instinct is to search for solutions to your problems online. You may thus find yourself reading a lot of "free advice" that may seem like a plausible solution to your debt problems. Here are some examples of "expert advice" you should probably stay away from.
There are many articles or blogs on debt solutions that you will come across online that lead you to believe that you cannot manage without a credit counsellor. However it is not entirely true if you can figure out your own CIBIL score calculation by reading your CIBIL report carefully. If you can keep calm, you will be able to spot the problem areas and arrive at the best solutions. However it is easier said than done at a time when you are mentally stressed because of the debt trap you are already in and are unable to think clearly.
So, if you decide to go to a credit counselling agency, do so after you carry out adequate research. Choose a credit counsellor that has an established track record in providing debt solutions to people who are grappling with credit card debt or have landed up in a loan defaulter list. Ensure that you contact a reputable credit counselling agency so that you are not duped into paying more money when you are already under financial duress.
A well-meaning friend or a debt expert may have suggested that the best way to handle credit card debt is to close it. But this is in fact a misconception. Closing a credit card even when you have worked hard to repay it in full is a bad idea, as it enhances your overall credit utilisation. Simply put, credit utilisation is the total amount of credit you use, as against the total amount sanctioned to you. By closing an existing card you bring down your overall credit limit thereby enhancing it. Credit utilisation has an important role to play in your CIBIL score calculation and must be maintained under 30% in order to maintain a good credit score.
Some debt experts or people you trust for advice may tell you that your debt situation is so bad that you need to file for bankruptcy. But do not be under the misconception that filing for bankruptcy is the "easy way out". Not only does your CIBIL score nosedive but about 100-150 points it is a blotch on your CIBIL report for as long as a decade. This means that with a bankruptcy tag on your credit report, you will not be able to access credit when you are in need of finances over the next 10 years.
What then is the solution when you are neck deep in credit card debt or find yourself on a loan defaulter list? The first thing you do is accept the situation and approach your lender for a possible solution. If your reason is genuine to have fallen behind on your payments, your lender may work out a solution where you can extend your repayment tenure or opt for a bad credit loan to repay the unpaid lines of credit.
Whatever it is, a solution is closer at hand than you think. All you need to do is keep a calm head over your shoulders and seek a sensible solution to your debt problems rather than taking in bad debt advice.