Credit cards have increased the spending power of people. On account of growing trend of purchasing products first and paying later, there are chances that an individual may overspend on a card and skip the payments or just pay the minimum amount. As a result, they might get trapped in debt, as credit cards attract hefty interest rates on paying late.

Live TV

Loading...

In order to maintain a good credit history, it is important to pay these bills. There are multiple options available in the market to get rid of the dues quickly.

Here are some of them:

Balance Transfer

Balance transfer is a kind of refinance facility, which enables the borrower to transfer outstanding facility of one credit card to another with lower interest rate.

"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 repayment of transferred balance," suggests Sahil Arora - director, Paisabazaar.

Also read: These banks offer up to 7.5% interest rate on savings accounts

Once the promotional interest period ends, the unpaid transferred balance begins to attract usual finance charges of the transferee card.

Snowball Method

This strategy helps cardholders in getting rid of the debt burden, if they have multiple credit card loans. Here cardholders can prioritise the loan on the basis of the outstanding balance amount.

"The lowest outstanding balance is paid first. Irrespective of the interest rates, and the remaining credit lines, cardholders need to pay the minimum balance amount. When the smallest loan is paid in full, they can roll the money into the next smallest balance," explains Pranjal kamra, CEO, Finology.

Also read: Facing funds shortage? Use these loans to tide over your liquidity woes

EMI Conversion

Cardholders can also choose to convert their outstanding dues into EMIs for repaying their outstanding dues. Depending on their repayment capacity, they can either convert the entire credit card bill or select card transactions crossing a specific threshold into EMI.

"While interest rates of EMI conversions can vary widely on basis of the credit card issuer, it would still be significantly lower than the finance charges levied on the unpaid credit card dues. Also, as the repayment tenure for such EMIs range anywhere from 3 to 60 months, cardholders can opt for the repayment tenure as per their repayment capacity," opines Arora.

Debt Consolidation Through Loans

Cheaper loan options like personal loan can also be opted for repaying credit card outstanding. While the rate of interest of EMI conversion facilities primarily depends upon the credit cardholder’s credit profile, the interest rates are usually higher than personal loan interest rates available from the same lender for the same credit profile, according to Arora.

Credit cardholders with existing home loans can also enquire about top-up home loans for repaying their outstanding credit card debt.

Those with substantial gold assets can also consider availing gold loans, if they are finding it difficult to avail personal loans, balance transfer or EMI option on credit cards. Gold loans usually come with shorter tenure and more flexible repayment schedules. The interest cost of gold loans can also be lower than personal loan interest rates for those with very poor credit profiles.

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

First Published:Aug 11, 2020 5:22 PM IST