Now a days a credit card is an essential part of our daily living. They allow quick access to emergency credit, provide an interest-free period of 20–55 days and also help improve our credit score if used properly. In addition they also offer benefits like cash back, reward points, air miles etc.
The problem starts when we start using credit cards to finance our lifestyle needs in an undisciplined manner. You start spending more than what you can afford and fail to repay your total dues on time. With your outstanding balance attracting interest rate of 22–48% p.a., it reaches a point where even the payment of ‘minimum amount due’ becomes difficult. You find yourself in what is known as the classic example of a ‘debt trap’ where the only solution is to avail a lower-cost loan option to repay your credit card debt. Of the various types of re-financing loans available, personal loan is one of the most convenient and relatively cheaper options. Some of the features are:
Low interest rates: Personal loans in India charge significantly lower interest rates than credit cards. While your credit card balance will attract an interest rate of 22–48% p.a., personal loan interest rates will vary between 12–16%. A lower interest rate not only reduces your overall payable interest cost, it also helps in faster debt repayment.
Consolidate several debts under one head: Managing outstanding balances of two or more credit cards can be a difficult task, especially as you fail to keep track of multiple due dates and outstanding balances. Taking a personal loan will allow you to pay off multiple credit card balances at one go and replace them under a single debt head. This will eliminate the hassle for remembering multiple due dates and making repayments of multiple dues.
Quick disbursal: Personal loans have one of the fastest disbursal procedures among all loan options. While some banks claim to disburse personal loans within 2 days, most personal loans are disbursed within a week if documentation and eligibility conditions are easily met.
Comfortable repayment options: Unlike credit cards where the entire outstanding dues have to be paid within the due date to avoid interest cost and penalties, personal loans allow you to spread your repayment over 1–5 years through monthly EMIs.
Sabyasachi Paul has been associated with equity research and advisory on equity markets in India for over 9 years & currently heads the equity research desk of Eastern Financiers Ltd, Kolkata.He also manages a portfolio on the online platform Kristal. Find link to the strategy named 'The Tortoise'