How does credit card deactivation affect your credit score?

Hunger for debt is growing among Indians. Especially in cases of unsecured loans like credit cards and personal loans. According to data by the Reserve Bank of India, in June 2023, Indians spent around ₹88,379.85 crore through credit cards online, while debit card transactions amounted to ₹17,012.92 crore. This indicates that trend of spending with borrowed money is only increasing in the country.

Using credit cards or taking personal loans for expenses is financially harmful. People perceive it as an easy deal because they get instant money without documentation and low monthly EMIs…
However, even a slight delay in repayment puts you in a cycle of heavy interest and fines. Not making timely credit card payments incurs an interest of 3 to 4 percent on monthly basis. This translates to 36 to 48 percent annually ..if you don’t back the debt on time.

Credit counselling platforms can help you get out of debt trap. Bank of India established the ‘Abhay’ Credit Counselling Center in 2006. ICICI Bank set up the ‘Disha’ center in 2007. These centers did not charge any fees from individuals… However, these centers are not operational anymore, and now, several private credit counseling platforms like FREED, SingleDebt, RectifyCredit, and Settle Loan have emerged.

Credit counseling companies talk about ‘liberating customers from debt trap,’ and while that might sound good, exercising caution is necessary before you get engaged with such institutions. Because, there are no regulations by the Reserve Bank for governing such platforms. Moreover, most platforms charge a fee before providing relief from debt. It’s also possible that these institutions take the fee from you, and you are not able to settle your loan. In such cases, you could end up in even more dire financial straits.

Credit counselors assess the financial challenges of individuals who are trapped in debt. These institutions create a ledger of borrower’s income and expenses. This helps determine how much the person can realistically repay the loan he has taken. Then, these institutions advise the borrower on how he can reduce expenses to save some money. Funds are deposited into a separate account, which will be used to repay borrowers’ debts. These institutions attempt to pay off high-interest loans of borrowers and their credit card bills first… Counsellors negotiate with the bank to lower the interest rate being charges on the loan. Requests are also made to waive-off penalties, and other charges. These councellors communicate with your lending partners for personal and credit card loans, and, help repay your debt… Then, you have to repay the borrowers’ loanon a monthly basis with lower interest. Moreover, these platforms work on improving borrower’s deteriorating credit score that resulted from non-payment of EMIs, so that you can get fresh loans in the future. Many platforms also claim that they handle recovery agent phone calls and thus save borrowers from facing harassment…

Private counseling platforms charge fees to take you out from the debt trap… Like, FREED charges a monthly platform fee ranging from 649 to 1,299 rupees. They also levy an additional 10% fee for money that you would save after coming out of the debt trap.

FREED claims that borrower’s loan cost would reduce by up to 45%. SingleDebt charges fees equivalent to what would be two months disposable income of the borrower. Meanwhile, Rectify Credit has a base charge of 5,000 rupees.

Just like Mukesh, if you find yourself trapped in debt trap and can’t get out of it, then go for carefully choses credit counselor… Before going to a credit counselor, make sure to research their credentials and reputation. Talk to people who have settled their loans through such institutions. Seeking help without knowing others’ past experiences isn’t safe.

Don’t solely rely on reviews on credit counseling companies websites, but reach out and talk to people. However, if you’re caught in a loan scam, know what not to do – don’t change your phone number or address to avoid calls, don’t ignore loan agent calls, don’t leave everything to fate, discuss how you can reduce EMI and increase tenure, consider refinancing… If a loan agent b