Sometimes, a lot of us end up with huge credit card bills. It could be a medical emergency, unplanned natural calamity or travel getting us into this. A lot of us end up with huge credit card bills which we then struggle to pay off. A typical interest rate for a credit card is 36 – 45 % per annum and the pending amount piles up faster than you can get rid of it.
So, what are the options? Well, there is a number of them, and let us look at them below:
Converting The Outstanding Amount Into EMIs: It just makes life a tad easier, but you still do end up with reduced credit limit, processing charges and obviously the high-interest rate which might seem a little lesser than what you’d pay normally. Banks generally tend to offer lesser interest rates to existing customers who opt for EMIs. This arrangement is convenient for consumers who do not want to go through the entire process of applying for a fresh loan.
Balance Transfer to a New Card: Effectively, you are just moving your debts from one card to another. The rate of interest is lesser and it allows consolidation of your debts. However, reduced rate is only applicable for the transferred amount and you end up with a reduced credit limit. But, if you miss a payment, the bank charges the regular rate of interest. In this case, that would mean the same interest you were paying for the previous credit card.
Personal Line of Credit: This is currently the most preferred method. This is where you consolidate all your credit card dues under one EMI. No need to worry about various payment dates and amounts. Also, there are no late fees or overdraft fees, which will save considerable money. Further, with one debt payment every month and a fixed interest rate, it should be easier to pay off loans on a shorter timeline. The rate of interest is probably around 12 – 18 %, less than half of what the credit card companies will charge.
Effect on Credit Score: One important aspect which also needs to be taken into account is the impact on credit scores. When the outstanding amount is transferred to a personal line of credit, the credit scores see it as one loan replaced by another and so the impact is limited. However, when it stays on a credit card, the outstanding keeps moving forward from one month to another, which is more dangerous and shows you have not been paying up. It frees up your available credit limit on the credit card and this is where it could become unmanageable. Self-restraint becomes important and you should not lead up another debt crisis to be solved.
Word of Advice: If your debts are unmanageable and you have multiple cards to pay up, it makes a lot of sense to move everything under a single personal line of credit. It will make life easier and organized!
Hope this clears all doubts regarding ways to stay away from credit card distresses. To be smarter and think smarter is the easiest of all.