Credit cards are a double-edged sword. While they help you buy things that you need but may not necessarily be able to afford, they also are a potential debt-trap. You have to be very cautious about how you use your credit cards, pay the bills promptly, and avoid maxing out the card, in order to ensure that your debt level stays low. Ideally you should not use more than 30% of your credit card limit.
However, if you have ended up incurring credit card debt, then you need to find ways to pay it off as soon as possible. This is because interest rate on credit card overdues are a lot higher than any other kind of loan. It ranges from 23% to 46% p.a. Moreover, overdues will attract penal interest, which would be around 3% higher than normal credit card interest rate. In addition to this, you also have to bear late payment charges, over-limit charges and other applicable fees. Altogether, defaulting on credit card payments or accumulating credit card debt is highly dangerous to your financial condition.
So what should you do to consolidate your credit card debt? One of the options available to you is to take a personal loan and pay off the credit card dues. Though banks in India do not offer debt consolidation loans separately, personal loans can be taken for any purpose. The lenders will ask you for the reason and you can state it as ‘debt consolidation’ or ‘credit card debt payment’. Most banks will not question the purpose unless it sounds like an unlawful activity.
You will need to provide your PAN, identity proof, address proof, and income proofs. This will include:
Personal loan interest rates in India range from 11% to 22%. Even with these rates, personal loans are cheaper than credit cards. With credit card overdues, it is unlikely that you would have a high credit score. This means that you may not be able to negotiate low interest rates with your bank.
Almost all banks in India offer personal loans to eligible candidates. These banks include nationalised banks, private banks, scheduled cooperative banks, and non-banking financial companies. The prominent personal loan providers include:
Ensure that you use an EMI calculator to see how much amount you would have to pay on your personal loan every month. This will help you determine how much you owe and plan your finances well.