HDFC Bank has recently increased the interest rates on the revolving balances on credit cards and late payment fees due to the rising default rates due to the on-going COVID-19 pandemic. These charges have increased from 3.49 percent monthly (that's 41.88 percent annually) to 3.6 percent monthly (that's 43.2 percent annually). Interestingly, other banks are now considering following the same strategy.

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In such a situation, the credit card customers who may have just come out of moratorium will have to pay extra charges and high-interest rates if they do not repay their dues on time. This means that they should repay their credit card dues immediately.

Here are some of the options to clear credit card dues quickly so as to avoid extra charges:

Go For Balance Transfer

A balance transfer is a kind of refinance facility, which allows the borrower to transfer the outstanding facility of one credit card to another with a lower interest rate. Therefore balance transfer not only eases stress but actually helps borrowers in saving significant sum, say experts.

The transferee card issuer usually extends a promotional interest period that ranges between two and six months during which it levies nil or lower finance charges. This will provide a window period to the cardholder to save and also arrange funds for the repayment of the transferred balance.

Opt For Personal Loan

According to Gaurav Chopra, CEO & Founder, IndiaLends, borrowers can also take a personal loan to clear credit card dues. The interest payable on a personal loan is comparatively lower as compared to those on credit cards. This means that one has to pay EMIs at a lower interest rate.

Being flexible in nature, personal loans could be best used to consolidate credit card debt.

If an individual has outstanding balances from several cards, a personal loan can be used to pay all such debts. As a result, he/she will just have one EMI left as opposed to multiple EMIs. Personal loans, unlike credit cards, even allow borrowers to choose the duration of the repayment tenure.

Withdraw Money From Employee Provident Fund (EPF) Corpus

The EPF is a long-term investment scheme, in which 12 percent of the employee's basic salary is invested in every month. The employer, too, makes a similar contribution to the employee's account every month.

It is considered as a safety net that helps employees in building their retirement corpus. While it is generally not advisable to withdraw the EPF corpus before retirement, an individual who is neck-deep in credit card debt can still use the money to clear the debt.

The government allows subscribers to make a partial withdrawal, or 'advance' withdrawal of up to 75 percent of balance or three months' wages, whichever is lower, as non-refundable advance from their account.

Disclaimer: CNBCTV18.com advises users to check with certified experts before taking any investment decisions.

First Published:Sept 22, 2020 10:42 AM IST