Replace credit card dues with lower-cost loans

Secured loans a good alternative if your outstanding amount is high

HDFC Bank, the market leader in credit cards, has hiked the finance charge (interest charged on rolled-over balance), late payment fee, and minimum over-limit fee with effect from September 1. The hike in rates has made it all the more critical for borrowers to exercise caution when handling their credit card dues.

The bank has increased the finance charge from 41.88 per cent to 43.2 per cent on most of its credit cards. The late payment fee has been increased for all credit cards (except Infinia), from ~950 to ~1,100 for bill amounts of ~25,00050,000, and to ~1,300 for bill amounts of more than ~50,000.

Indusind Bank, too, plans to increase its late payment fee for certain bill amounts from October 1. Other players may do the same.

“When one of the leading players increases charges, others tend to follow suit,” says Pankaj Bansal, chief business development officer, Bankbazaar. Customers who pay their credit card dues on time will not be affected, but those who roll over their dues will have to pay a higher cost.

Says Gaurav Gupta, founder and chief executive officer, Myloancare: “Customers are coming out of a six-month moratorium. If they don’t pay now, chances are their accounts could go into delinquency. By raising charges, lenders are nudging them to start paying.”

Instead of trying to preserve cash, credit card holders should repay their bill amount within the due date, given the high interest rates.

“Those failing to repay their bills due to sheer negligence should register themselves for autopay or pay heed to reminders sent by payment platforms,” says Sahil Arora, director,

Paisabazaar.

Credit card owners should also try to stretch their repayment tenure. Adds Arora: “If you can’t pay the entire credit card bill, convert it into equated monthly instalments (EMIS) to match your repayment capacity.” The interest rates on such EMIS are lower (around 18-24 per cent).

Another option is to take a personal loan, where the interest rates are even lower — about 10.5-15 per cent. “When a credit card customer goes for these options, he brings down his cost of borrowing. He also gets a longer period to pay off his loans, since the tenure on such options can go up to four-five years. The limit on his credit card also gets freed up,” says Gupta.

Those who availed of the moratorium would have found that their debt burden escalated rapidly.

If the amount has become unmanageable, take secured loans. “Borrowers who have substantial gold holdings should borrow against them,” says Arora. Interest rates on gold loans begin from 7.5 per cent.

Those who have a home loan may go for a top-up. Interest rates on topup home loans are close to what they are paying on their home loan.

State Bank of India offers an overdraft facility on its Maxgain home loan. “If you have prepaid your home loan, you can withdraw that money and use it to repay more expensive loans,” says Bansal.

Salaried people may take advantage of the government’s special dispensation, allowing them to withdraw from their Employees’ Provident Fund corpus.

Customers who pay their credit card dues on time will not be affected, but those who roll over their dues will have to pay a higher cost