The festival of Diwali has passed and if your credit card bills have not reached you yet, they will be coming to you soon. In such a situation, you need to take account of the expenses incurred during this period. Many of us must have shopped heavily during the festive season. There will also be many people who have spent money during the festival by going beyond their budget.
If you have swiped a fast credit card then you will have the pressure to pay heavy bills and arrears. How will you deal with this debt? You will have the option to accept Equated Monthly Installations (EMI) offers of credit cards. Apart from this, you can also pay a fixed amount and leave the remaining bills for the next month.
However, both these options are not good.
So how can you reduce your debt burden? Especially at a time when you may be facing problems like salary cut or job loss, this loan can prove to be difficult for you.
Redeem your cashback and reward points
If your credit card issuing bank has not yet generated the bill, you should redeem your reward points. Some banks allow you to pay your credit card bill using your reward points.
If your credit card bill is generated, then any request you make will come in the next billing cycle. This will delay the relief you get.
Credit card EMI option
Credit card EMI is one of the easiest options available to pay credit card dues. The interest charged on these varies from 15 to 22 per cent. Also, things like high prepayment cost accompany it.
Transferring the outstanding payment to a credit card that has the lowest interest and the longest interest free period can also be used as an option.
You can also convert your arrears to EMI by calling your bank’s customer service.
Adil Shetty, CEO of BankBazaar, says, “However, both of these options are quite expensive compared to a secured personal loan. If you can get a personal loan in exchange for a fixed deposit, insurance, property or gold at a lower interest rate and a smoother EMI, then it can be the best way to repay your debt. ”
Aparna Ramachandra, Founder Director of RectifyCredit.com, says, “It is important to keep in mind that during the current epidemic, you may not have the option of EMI from the bank that issued the credit card. If the bank gives you the option of EMI payment, it will be for a shorter period and the interest charged on it may be higher. ”
Home loan top-up: cheap but limited option
You can also demand a top-up on your existing home loan so that you can repay your loan. But, it has its limitations. Shetty says, “Home loans take much longer to get. In such a situation, even if you are getting top-up at a low interest rate, but long tenure means that you may have to pay more money as interest. ”
For example, if you take a top-up loan of Rs 1 lakh and its tenure is 15 years, you will have to pay around Rs 70,000 on the interest only for as little as 7.5%.
In this case, it is necessary to dispose of this top-up properly. It is better that you keep some money aside every month and try to repay the amount taken from the top-up completely within a year. This will save you a lot of interest.
However, these loans can be given only to those who are already paying EMI on home loan.
Avoid taking an app based loan
Taking loans from fintech lenders is also an option. Many times you get deals from app-based lenders at a fixed rate of interest.
However, personal loans available at a reducing interest rate prove to be a more affordable option.
According to Gaurav Gupta, Founder and CEO of Myloncare.in, “App-based loans are preferred by people whose credit history is either absolutely non-existent or whose salary is up to Rs 20,000. Other borrowers are expected to get good personal loans rather than app-based loans. ”
Loan against investment
Top-up loans and personal loans are effective for those who can repay their EMIs regularly through their cash flow. But, if you have a problem of cash flow, then see if you can raise funds in return for your investments.
You can take a top-up or personal loan against fixed deposits, mutual funds, life insurance policies, and even gold. They may reduce your cost of funding. These loans usually come in the form of an overdraft of around one year. Banks increasingly give them digitally.
Says Ramachandra, “Since equity markets are going well, you can sell your equity investment in profit. Apart from this, you can also sell some units of your mutual fund schemes. You can also check your insurance policies where partial withdrawal is possible. You can withdraw your investment profitably and pay the credit card dues with it. ”
What you should do?
First of all, see the terms and conditions of your loan agreement. Ramchandra says, “Also talk to your bank and discuss the repayment options of your credit card balance. Show that you want to pay and you have no intention of defaulting on your credit card balance. ”
If you take a loan to pay your dues, you should focus on the interest rate, pre-payment terms and other expenses. You can also look at such festival offers of banks in which you can get a loan at a lower rate of interest and waiving processing fees on these loan products. In this you can get a lot of help from your good credit score.
After repaying the loan, you should start moving forward on your investment strategy again.
