Personal Loan or EMI: What is Better to Pay off Credit Card Debt?
In the past few years, Credit Cards have penetrated in India at an unmatched pace. A cardholder enjoys unlimited benefits such as increased spending power, dedicated discounts & offers, cashback, reward points, flier miles, and much more. Most importantly, Credit Cards often come to one’s rescue in case of emergencies.
While Credit Card benefits are undoubtedly amazing, delayed or skipped payments are usually not. Being one of the most cost-intensive credit instruments, if used recklessly, Credit Cards can quickly become a financial burden. Thus, having a high Credit Card outstanding affects your credit score adversely.
Hence, if you, too, have a large outstanding balance on your Credit Card, it is highly recommended that you deal with the same immediately. There are primarily two ways of tackling your credit card debt– by taking a Personal Loan or by opting for EMIs.
Let us discuss each of these methods of repaying card balance in detail and understand which one of these would be more suitable for your needs.
When you apply for a Personal Loan to repay Credit Card balance, it is a Debt Consolidation Loan. Since Personal Loan Interest Rates are usually lower than those applied on Credit Card balances, this measure can prove to be cost-effective.
It is Collateral Free Loan
In case your Credit Card debt is exceptionally high, a Personal Loan can help you procure the required funds without pledging any collateral in return.
It Helps Reduce Repayment Stress
Considering that a Personal Loan incurs a lower rate of interest, it will not be wrong to say that using this loan to pay off your Credit Card dues will come with a sigh of relief. Moreover, the loan will allow you to repay the debt in the form of 12 to 60 convenient EMIs, giving the control of your finances back in your hands.
It Can be Availed Quickly
In most cases, a debt consolidation loan can be applied for and procured in as little as a day’s time, owing to the minimal documentation involved. Besides, the amount is directly deposited into your account. Once you receive the funds, you can directly transfer them to your Credit Card account, and revel in the much-awaited freedom from the mounting Credit Card interest rate.
EMIs to Pay Off Credit Card Debt
In this case, you can approach the Credit Card provider and request them to offer you an EMI scheme that helps you pay off the outstanding balance in small, regular chunks of money over a stipulated tenure. You can essentially consider this as a Loan on Credit Card.
Alternatively, you may use this option when the Credit Card provider has provided you upfront information that you can avail of EMIs on the purchase of specific products or services from select brands.
Here are some of the salient features of using EMIs for paying off your Credit Card balance:
It is a pre-stated offer on the card.
EMI on Credit Card balance is a unique facility and is not provided by all Credit Card Companies. Hence, to avail of the facility of EMI, your Credit Card provider must have confirmed its availability right at the time of purchasing the card.
It lowers your liability.
Like in the case of any loan, EMIs on credit card, unless otherwise states, incurs interest. To make things cost-effective for you, the Credit Card provider will charge a lower interest as compared to the rate levied on other balances on the card.
For instance, if you make a big-ticket purchase worth Rs. 50,000 and wish to repay the same in the form of EMIs; your Credit Card provider will first levy interest of say, 1.5% per month, and then divide the resultant amount into 6 to 12 equal instalments depending upon your preference.
It attracts regular interest in case of default.
If in case you miss out one of the EMI payments during the stipulated tenure, the amount of the EMI will be considered as an outstanding balance and will attract the usual interest rate charged on balances, that may be anywhere between 24% to 48%, over and above the already levied interest for the EMI facility.
It has some pre-defined terms.
Using the example above – Maybe you wish to repay the amount in 9 EMIs. However, the offer availed on the specific purchase may dictate that you ought to repay the amount within months to avail of the low-interest rate. In such cases, the onus to meet these conditions will rest upon you.
It will block your card limit.
When you’re servicing the EMIs, your credit limit will decrease. The outstanding amount will be treated as the user limit, and therefore you will be required to maintain an exceptionally low CUR in a bid to ensure that your Credit Score doesn’t take a hit as a result of this arrangement.
All in all, both options can readily help you get rid of Credit Card debt looming over your head, that too in a cost-effective manner. However, the final decision should base on the extent of debt and your repayment capacity. For instance, if you think that you can repay the outstanding in 3-6 EMIs, converting it into EMI would be helpful, while in case you think it will take more than a year to repay the loan, opt for a Personal Loan. In both cases, do restrict your card spends till you ease your liability.
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