Adopting these 5 ways can help manage your credit card dues, without incurring hefty finance charges.
The RBI recently announced multiple measures to provide relief to the borrowers impacted by the COVID-19 induced lockdown. The moratorium facility has been made available not just for term loan borrowers, but also for credit card holders, providing much needed relief to those whose cashflows have been impacted due to this pandemic. But, with credit card interest rate being as high as 49.36% p.a, card holders would continue to accrue interest on their credit card dues during the moratorium. Adopting these 5 ways can help manage your credit card dues, without incurring hefty finance charges:
1. Convert big ticket purchases into EMIs
Often, big ticket purchases make it difficult for cardholders to repay dues on time and in full. Converting such expenses into EMIs can help ease the burden of lumpsum repayment. With interest rate ranging between 12% and 15% p.a. and available tenure of 3 months – 48 months, converting bigger spends into EMIs can save you from hefty finance charges, which would otherwise be levied if you fail to clear the dues in full by the due date.
2. Convert outstanding balance into EMIs
You may also choose to convert your entire outstanding credit card dues into EMIs. Doing so would help lower the interest cost, given that lenders usually offer balance conversion at 12%-21% interest rate. In addition to this, you may also choose tenure ranging anywhere between 3 months to 60 months, depending on your expected cash flow.
3. Credit card balance transfer
Balance transfer facility allows credit card users to transfer the existing credit card dues to another credit card- be it an existing card or a new one – at lower or nil finance charges. The transferee card issuer generally extends promotional interest period ranging between 2 months and 6 months, during which it charges lower or nil finance charges on the outstanding dues. This allows cardholders to work around their finances and arrange funds for the repayment of the transferred balance. Remember that once the promotional interest period ends, the unpaid transferred balance will begin attracting usual interest rate applicable on the transferee card.
Before zeroing in on the card for balance transfer, do not forget to compare the processing charges, offers and benefits, interest rate and duration of promotional period of various cards.
4. Redeem low yield investments
Finance charges levied on the outstanding credit card dues are significantly higher than the interest rate accrued from fixed income instruments such as bank fixed deposits, bonds, debt funds, etc. In case these fixed investments, which usually fetch returns of around 7%-9% p.a., aren’t earmarked for a specific goal, credit card users reeling under mounting credit card dues can consider redeeming low yield investments to pay the outstanding dues, which would otherwise attract hefty finance charges of around 40% p.a. on failure to repay timely and in full.
5. Avail pre-approved loan against credit card
Credit card issuers offer pre-approved loan against credit cards to the existing cardholders who have displayed consistent bill repayment history. Being pre-approved in nature, such loans have quicker processing time and can be disbursed instantly or within a few hours. Credit card holders who are struggling to repay their outstanding dues can avail the pre-approved loan facility, if available, to reduce their burden of repayment. Tenure of the loan can range anywhere between 6 months and 5 years, and its interest rate can be as low as 10.99% p.a. Although the pre-approved loan is usually offered as a fixed percentage of the associated credit card’s limit, some lenders may also offer it over and above your existing credit limit.
(The author is Director & Head of Investments, Paisabazaar.com)