Introduction 

Small and middle-income borrowers can breathe easy as the Government of India has ensured that substantial relief measures will be offered by banks and financial institutions during the ongoing pandemic period. This has benefited many borrowers across the nation, especially those who have credit card debt to be repaid. 

The six-month moratorium that was initially offered by all credit card issuers acted as an immense relief for credit card users, especially those who had large outstanding balances. Despite these measures, many credit card owners have had to deal with a large amount of debt in recent times. Credit card users who chose the moratorium option saw their outstanding bills spike as the interest continued to accrue during such period. Note that the government recently announced a waiver of compound interest on credit card dues during the moratorium period. Hence, your credit card balances can reduce a bit. 

Despite the moratorium and waiver of compound interest, a large number of credit cardholders have to deal with a hefty outstanding sum. This is primarily because the interest on credit card debt is generally very high. If you are not able to manage the higher credit card dues and want a way out, fortunately you have a few options in your favour. 

Here we share a few tips and options which can help you as a credit card user/borrower during these challenging times. 

  1. Balance transfer mechanism: To lessen the burden of credit card dues and corresponding high-interest rates, you can transfer any outstanding balance to an alternative credit card which offers a lower interest rate. This is commonly used by individuals for reducing the debt burden since many credit card providers offer a low-interest rate or introductory benefits to customers transferring the outstanding balance from a card. It also doesn’t invite any penalty charges and provides relief to borrowers.

Additional Reading: Credit Card Balance Transfer

  1. Pay the minimum due: If you have multiple credit cards and are going through financial stress, try to pay the minimum amount due on every card. Delaying this will attract heavy penalties which will impact your upcoming repayment plan. Try prioritising repayment of the credit card bills which have the highest interest rate. This will help in significantly reducing the ongoing debt burden.
  2. Convert outstanding dues to EMI: A smart way of reducing credit card debt burden is to convert the outstanding dues on your card into EMIs. This rate is generally lower than what you have to pay under normal circumstances. Credit card dues must be cleared every month, else it can attract a high rate of interest. If you are experiencing financial stress, opt for the ‘convert to EMI’ option to reduce the overall interest burden.
  3. Take a personal loan to pay off credit card dues: We all know that credit cards can attract high interest rates as compared to all other borrowing options. If you are under a credit card debt trap, you can opt for a personal loan to ease the burden. While personal loans may also come with a high rate of interest, it is substantially lower as compared to rate charged on credit cards. Borrowing a personal loan will help you in clearing your outstanding credit card/cards payments in one go. However, note that choosing this option means you will have to clear the personal loan EMIs every month, until you finish off the loan. So, make sure to weigh the pros and cons before opting for this tip. 
  4. Reduce non-essential expenses: Credit card discipline is very crucial while trying to ease the debt burden. Managing credit cards is easy if one follows some simple rules around expenditure. Avoid piling up on new debt since it will make the situation challenging in the long run.

How are credit card balances calculated? 

Normally, when you use a credit card, you get an interest-free period of maximum 50 days for repaying your bill. The due date is the last day of the interest-free period. In case you do not make the payment on time, interest charges and late fees may be levied on the due amount. Apart from this, your credit score gets adversely affected too. 

Credit card companies also have the option of a "Minimum Amount Due" which is a portion of the "Total Outstanding Dues"- ranging somewhere around 5%. If you make the payment for the minimum amount due, you can ensure that your card account remains active and you don’t have to pay any late fees or penalty. Interest charges are still levied on the outstanding dues.

How will my credit card balance be calculated if I had chosen the moratorium? 

When it comes to a moratorium, most credit card companies do not require you to pay even the minimum due during the six-month moratorium period. This will also not have an impact on your credit score. However, the interest gets charged on your dues until repayment is made in full. The interest is cumulative, i.e., the unpaid interest is on top of the outstanding amount. This total is used for calculating the upcoming month’s interest. The outstanding due can snowball till you clear all outstanding dues.

Choosing the moratorium partially or fully can lead to interests on the credit card balance ranging around 3-4% per month. This is why experts cautioned against choosing the moratorium. 

Quick Tips to Pay Outstanding Credit Card Dues

If you're experiencing cash-crunch and are unable to repay your dues, you can consider alternatives for clearing your card dues. Try using your emergency fund or consider partial withdrawals on your EPF account. You can also liquidate any non-essential investments for raising the necessary funds. Try learning about any loan options which can be sourced from your friends or family members. 

The Final Word

It always makes more sense to clear outstanding dues on credit cards instead of delaying the payments. Delayed payments not only increase your overall debt burden, but can impact your credit score adversely.

A credit card which is available with its full credit limit can add great value in times like these. It is one of the most convenient payment tools available and can act as a back-up plan in case of an emergency financial situation. You can also avail benefits like easy EMIs. 

Credit card users who maintain a good payment schedule can avail offers like pre-approved loans for additional and immediate financial needs. These come with no paperwork and can help in easing any financial difficulty.

Use the tips and relief strategies listed here to get back your credit card payments on track and avoid falling into the dreaded credit card debts, during these pandemic times.