The lucrative discounts and cashback schemes on credit cards, available especially during festival seasons, more often than not let individuals go on a shopping spree. The buyers drift away from their financial constraints and mostly rely on their credit cards for such over spending.
Credit cards make these expenditures convenient but overspending can sometimes disturb one’s financial balance, as one hopes to repay the pile of debt in the next billing cycle, but ends up looking for a more convenient mode of payment like the EMI (equated monthly instalment).
This option of paying credit card outstanding dues using EMIs comes handy, but at a cost too. High pre-payment charges levied on converting dues into EMIs make it an expensive affair when compared to taking personal loan against fixed deposit, gold, property, among others, for credit card debt repayment.
One can still consider converting their dues into EMIs for all is not lost. An individual should avoid considering paying the minimum due as that attracts huge interest on revolving credit. Dialing an EMI attracts a lower interest rate (approximately 14-20 percent) as compared to interest levied on the outstanding without EMI (approx. 35-45 percent).
In the EMI option, the interest is charged only on the reducing balance and not on the complete outstanding. For instance, if the total outstanding is Rs 50,000 and you pay Rs 10,000, then the interest will be charged only on the remaining outstanding of Rs 40,000.
Opting for the EMI route gives the cardholders a flexible repayment option and credit card history can be improved. Some banks offer longer tenure of as long as four years to clear your credit card outstanding. Paying only the minimum due should always be avoided as that attracts high interest on revolving credit.
Banks levy a processing fee of 1-2 percent of outstanding plus applicable GST for converting the dues into EMI. Also, there is foreclosure option of 2-3 percent.
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