Have You Used Your Credit Card Much Beyond Your Repayment Capacity? Here’s What to Do

26 Jul 2018

Credit Cards sure come in handy when you don’t have ready cash to manage your regular expenses or in emergencies that need large spending. However, they can get you debt-trapped very badly if you use them recklessly. The thumb rule, therefore, is to spend those amounts only which can be easily repaid within the credit period to avoid heavy interests and penalty charges. Ideally, your credit spending should be less than 40% of the specified credit limit so that you get a positive credit score. In other words, it is for us to prudently judge always How Can We Get the Credit Card to work to our maximum benefit.

It is also often seen that many Credit Card users get into vicious debt traps that pull down their credit score and they pay interests ranging from 23% to a whopping 47% annually. Therefore, should you be one such unfortunate victim, here’s what you need to do to free yourself from this unwanted debt.

Start paying all outstanding dues through equal monthly installments (EMIs):All Credit Card issuing banks have provisions for converting outstanding dues into EMIs. Therefore, should you find that you are unable to pay all dues in one go, talk to your bank and arrange for payment by EMI over 6,9, 12, 24 and 48 months, respectively. This would give you the benefit of paying lower interest rates of up to 22%  per annum with a processing fee of up to 2.5% s of the total loan amount. However, remember that defaulting on an EMI could attract further penalties and interest.

Go for a dues transfer to another Credit Card: For those who are hopelessly debt-trapped, a balance transfer to SBI Credit Card or another Credit Card is often a feasible way to reduce and pay off debts. The transfere Credit Card issuer allows the debtor a buffer period for the said transfer. This allowed time enables the debtors to clear off their debts at lower interest rates from zero to 1.7% per month. This buffer time is called a promotional period and is usually valid till 6 months. This has a two-fold benefit -it gives the debtor the time to arrange for funds to pay off the debt and also makes the interest accrual component slow. However, it needs to be remembered that once this promotional period is over, the amount transferred will start attracting the usual rate of interest.

Personal Loan to the rescue: Since unpaid dues of Credit Cards attract huge interest rates, those with more than two cards with mounting debts could be facing a financial nightmare. This may make it necessary to opt for a Personal Loan that would help you consolidate all your outstanding debts under a single umbrella. Interest rates for Personal Loans usually range from 10.99% to 20% annually. This is definitely lower than Credit Card interest rates that fluctuate between 23% to 47% per annum. A Personal Loan, therefore, aids a debtor to pay off a high-interest debt in EMIs by way of a lower-interest loan.

The Reserve Bank of India has recently directed all Credit Card issuing banks to review their Credit Card charges which are inordinately high because the central bank feels that such high-interest rates are not aligned to other financial products that carry the same risk profile as Credit Cards do.

Appeal to the bank: If the debt situation has arisen because of circumstances beyond your control like a major illness, loss of job or any other serious cause, you may approach your bank with proof of the same and discuss a mutually beneficial solution to the problem. Banks usually tend to be flexible if they are convinced that the debtor is faced with a genuine problem and has all intentions of paying up.

Conversion of large purchase amounts into equal monthly instalments:All Credit Card issuers offer their clients the option of converting large purchase amounts into equal monthly installments. The general rule is that a cardholder who makes a transaction of Rs. 3000 or above gets a choice to convert it into EMIs before the next billing cycle. This amount may vary from bank to bank with some institutions also allowing transactions of Rs. 2,500 or Rs. 5,000 and above to be converted into EMIs. A transaction normally takes up to 3 days to show on the record. So you need to contact the bank immediately after that and request for conversion to EMIs over 6,9, 12, 24 or 48 months. This, of course, will come with extra payable interest and the amount will be blocked against your credit limit. This helps you to not only pay off in installments but keeps your finances under control also.

In sum, Credit Cards are like double-edged swords. Use them carefully to get the maximum benefits of the free credit period and pay off your dues promptly. That way you will always be debt free.

Also Read: Does an Unused Credit Card Impact Your Credit Score?

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