How to Pay Out Credit Card Outstanding Post Moratorium?

Credit Cards add extraordinary convenience and transaction ease in one’s life. However to fully enjoy all the card benefits including discounts, cash backs and rewards points along with a robust Credit Score you should must understand how to manage your card repayments.

In face of COVID 19 if you opted for Moratorium on your Credit Card, your Credit Card statement will begin to active for payment from the monthly due date (as previously). Particularly this month’s bill will be an inflated one due to non repayment for moratorium period.

What happened to your Credit Card Bill during Moratorium?

Considering the card was inactive, and there is no further addition in payment, the card balance would be appreciated as below:

Thus, we can clearly see impact of Moratorium on outstanding. We haven’t added any GST or other charges. The above calculation only included interest. 18% GST is also applicable on interest accrued. Here, within six months your liability has been escalated 16- 23 % basis the rate of interest or card variant.

Clearly there is no point in delaying your Credit Card balance any further. Rather than piling up interest on interest burden, it is recommended to repay Credit Card bill as much as you can afford.

Here is a list of various options you have for paying out your Credit Card outstanding. We have also discussed the pros and cons of each option so that you can make a wise decision.

1. Pay full amount by statement due date.

For Credit Cards, it is always recommended to repay your entire bill. As such you get 40-50 days of free credit period with your card. And when you repay the entire statement amount as per bill date, you need not pay any interest for the transactions. Thus Credit Cards empower you to use free credit, eases your cash flows besides offering great discount & offers.

Failing to repay the bill in time, you not only pay interest amount but are also subjected to pay penal charges and hurt credit rating at the same time. It is worth considering reshuffling of your saving & investment portfolio to pay out the Credit Card outstanding all at once.

For, it is highly unlikely that an investment will offer you 24-46% of return, especially amid current situation. Thus cut the debt & ease your cash flows.

2. Part Pay & Roll over; Do Pay Minimum Due

Whether you are considering restructuring or further repayment relief on your debts, it is suggested to ensure that you do not miss the payment of this month. After Moratorium it is very important to ensure that your credit rating is not tainted for irregular repayments. Though SC has asked lenders to not change the status of accounts on non payment till the further guidelines are released, yet you should ensure that your account doesn’t default the payment. By repaying MAB (generally 5% of your credit bill) your account will remain standard. Wherever possible make maximum repayment as per your cash flows during the month.

3. Opt for restructuring

If your job or monthly income is hampered due to COVID 19, RBI has asked banks to offer restructuring option and you can repay your debt within 2 years of time. Your banks will release guidelines for restructuring your debt into a monthly term loan. This will put off pressure from your monthly pay check and you can systematically repay your loan affordably.

Banks will accept restructuring requests till December 31,2020 and thus you must continue repaying MAB till then.

4. Opt for Easy Pay EMI option

Most Credit Cards come with an option to convert their outstanding balance into easy EMIs. The rate of interest would vary from 14 to 24 % and thus it reduces the cost of interest on your debt. Besides, it lets you choose the tenor. You may choose to repay your amount in 3, 6, 9 or 12 months. Shorter the tenure, lower will be interest cost. Thus, opting for EMI could be one of the most tailor-made option.

5. Balance Transfer to another Credit Card

In case interest rate on your Credit Card is on the higher side, say above 3.5% or more per month it is much recommended to opt for EMI with Balance Transfer option from another Credit Card Company. This can be one of the good ways to convert your existing liability into affordable EMI option and at the same time will reduce the finance charges on your card. However, you need to qualify for Balance Transfer option. The card issuer would look for credit worthiness. You should be able to prove your worth by showcasing clean repayment history and regular monthly income credit in your salary account.

6. Loan against Fixed Deposit

Instead of paying high interest rate month on month on your Credit Card outstanding, you should look for pre-approved loan options that will cause least disruption in your life. For instance you can apply for Loan Against Fixed Deposit, Loan Against Mutual Funds, etc.

You can avail up to 80 % of deposit as Loan against FD. The bank will only charge you 1-2 % of interest per month & you can repay flexibly as per your convenience. There will be no hassle of serving a fixed amount each month and you will get rid of costly Credit Card bill payment.

7. Gold Loan

This is undeniably one of the best options for anyone who has gold to pledge. We have seen highest rally in gold prices in this decade so by pledging your gold you will get maximum value at this time. Recently the RBI has also increased LTV against gold to 90 % till March 31, 2020. The rate of interest on Gold Loan starts at 8-9 % per annum and thus it can be one of the best ways to avail of funds and build a strong debt repayment plan. You can borrow Gold Loan for 12 months and the same can be extended at the end of tenure.

8. Debt Consolidation Loan

In case you are toiling with multiple Credit Card debts, consider a strategic debt consolidation plan. Rather than opting for high ticket Personal Loan, go for secured options such as a loan against your Car, a Home Loan OD or Loan Against Property (for very large amount of debt).

This will help you in following manner:

1. Get rid of multiple EMIs
2. Make debt affordable by reducing size of monthly repayments
3. Lowered overall cost of debt
4. Adjusted tenor as per your financial situation

All in all, you need to think wisely and chalk out a debt management plan. You can consider using professional advice. Compare interest rates and choose peace of mind by repaying debt.

Frequently Asked Questions (FAQs)

✅ Can I determine my credit card outstanding balance?

Yes, you can access internet banking and check your Credit Card statement amount and unbilled amount. The statement bill basically is total of Purchases, Payments, EMIs (if active), and any past dues during the statement period. 

✅ What is my available credit limit?

Credit limit is basically how much you can spend in a month on your Credit Card. The available credit limit will be total limit minus outstanding amount & unbilled transactions.

✅ How is Minimum Amount Due calculated?

Minimum Amount Due is the amount you need to repay to avoid late payment charges. It varies from bank to bank. As for HDFC Bank it is 5% of overall bill plus applicable charges.

✅ What happens when you do not pay on or before due date?

Non payment of dues in time can negatively impact your credit score. It will also make you subject to late payment fees, penal charges etc. For continuous non payment of bill, the card can also be blocked.

✅ How does repaying Minimum Amount Due affect my credit health?

Paying minimum dues keep status of your card active, however it attracts interest rate charges and thus substantially increases your liability over the time.

✅ I lost my credit card statement. How do I know about Total Amount Due, Minimum Amount Due and Payment Due Date?

You can access net banking, mobile banking, SMS or website chatbot to access your statement details. If you haven’t yet opted for email delivery of your card statement you must activate email for future. The customer care can also guide you on the same.