- Pay off your loan and credit card bill early and maintain a good credit score
- Read the post below and know the ways by which you can pay off your loan EMIs and credit card bills easily
If you fail to pay your credit card bill and loan EMI on time, it might create problems for you later on. When you use your credit card recklessly, you will head to just one way i.e. a debt trap. But you can avoid this if you use the credit card smartly. The same rule applies to loans; the late payment of every EMI due carries a penalty interest of 2% that can increase your burden. If not controlled early, you could come to a situation of default. And, if that happens, the credit score will come down. So, it’s important to clear your loan and credit card bills diligently. Read this post and find the ways by which you can do so.
Consider a Balance Transfer Facility
A balance transfer facility allows you to transfer the due balance to a new lender. Using the balance transfer you can transfer your multiple credit card debts into a single card. Also, you can reduce the interest outgo of your loan payments with a balance transfer. See the example below to know how it helps the customers to pay off a loan and credit card bill easily.
For example: If you have borrowed a personal loan of INR 10.30 lakh for 5 years of tenure at an interest rate of 15.00% per annum. Two years have gone by and you are looking for a lender that can give you an attractive balance transfer facility. In case you get the facility at 11.20% on your outstanding loan balance, how much will it save for you? Look at the table below to know the same.
|Original Loan||INR 10,30,000|
|Interest Rate||15.00% Per Annum|
|EMI @15%||INR 24,504|
|Estimated Interest Outgo @15% Over 5 Years||INR 4,40,218|
|Interest Paid Till 2 years||INR 2,64,950|
|Outstanding Balance at the End of 2 Years||INR 7,06,862|
|EMI Payable at the New Rate of 11.20% for the Remaining 3 Years||INR 23,209|
|Interest Payable at the New Rate of 11.20% Over the Remaining 3 Years||INR 1,28,653|
|Interest Paid Till Now + Interest Payable Over the Next 3 years||INR 3,93,603|
|Estimated Savings in Terms of EMI||INR 1,295|
|Estimated Savings in Terms of Interest Payment||INR 46,615 (4,40,218 - 3,93,603)|
Note: Your new lender may charge a nominal fee for the balance transfer which will be dependent on your due balance. So, calculate the total savings amount factoring in the fee before you go for a balance transfer.
Convert Your Credit Card Bills into EMIs
If you find it difficult to repay your credit card outstanding amount, you can request to convert the outstanding amount into monthly EMIs. However, your lender charges an interest rate of 13%-18% per annum for the EMI facility. So, if you are comfortable with small EMI payments, it’s a better solution to pay off the credit card bills easily without any burden on your monthly income.
Pay Off Debts Having the Highest Interest Rate
It is difficult for the borrower to pay off his or her debts when there are multiple loans or credit cards. Then, in this situation, you should pay off the loan or credit card that has the highest interest rate. Doing so can help reduce the burden on you. If you pay a high interest loan and credit card bill first, there is less to worry about.
Take Benefit of the Interest-free Credit Period
Credit cardholders get an interest-free credit period of 50-60 days.You can arrange the required sum during the interest-free period and pay off the bills on or before the due date. It helps you avoid the steep interest rate of 30%-45% a year, which can be the case when you pay the due late and pay it partially.
Pay More Than the Minimum Amount
To pay off your loan and credit card bill before maturity, you can increase your EMI amount. It helps you reduce the outstanding balance. The shorter the tenure the less interest amount you’ll pay. But it works for those individuals only who are capable of paying a high EMI amount. So, you need to reduce your other expenses to make it work.
The Automatic Payment Facility
Using the payment methods such as Electronic Clearing Service (ECS), National Automated Clearing House (NACH), or Standing Instruction (SI), you can pay off your loan and credit card bills without any hassle. These services provide you with an auto-debit facility. The credit card bills and loan EMIs are debited from your bank account every month before the due date.
Keep Track of Your Loan and Credit Card Payments
Check your payment record annually to know how much you have paid and what’s the current balance of your loan and credit card account. It helps the borrower understand the repayment structure. To reduce the loan repayment, you can plan a loan prepayment considering your income, fixed obligation and overall savings. Using which you can save on the interest outgo and close your loan account before its maturity date. It can help you save on interest payments. However, a nominal fee is required for the prepayment of a loan that ranges from 2-5% of the loan balance if it’s about a personal loan. In the case of a home loan, the prepayment charge can be around 1%-3% of the outstanding balance.
Limit Your Loan and Credit Card Application
You should avoid borrowing a new loan or credit card when you have an ongoing loan EMI or the credit card bill. Why? Because it can increase your debt burden and make it difficult to manage multiple loans and credit card payments. Try to save money from your monthly income. So, whenever there is a need for a fund, you can use it from your savings.
The Last Resort – Make a Debt Settlement
If you haven’t paid your loan and credit card bills for a long period due to unemployment, the last option for you is a debt settlement. Yes, it is a process where your lender agrees to close your loan and credit card account at a reasonable amount. The settlement amount is less compared to the original debt, which is a relief for the borrower. But it might impact your credit report negatively as a remark ‘settled’ is made to your credit report after the settlement.
To get rid of the remark, you can pay the outstanding balance of your debt later and remove the ‘settled’ tag from your credit report.
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