Ways to manage your credit card dues

Knowing basic terms like billing cycle,minimum-amount due and grace period is indispensable to manage both spending and repayment patterns,and any negligence on our part could result in spiralling interest costs. Any sound repayment strategy starts with strong basics.

Stop erratic spending

Today,most of the purchases have become slicker than we might think due to the advent of more shopping malls and online shopping marts,and as a result we end up in a spending spree by completely losing control . A manageable debt always follows a controlled debt,and hence the imperative to stop sloppy spending habits.

The above discussed points constitute the basic requirements to effectively plan and manage the repayment of credit card dues because even the best repayment strategies fail without good debt control.

Pay within the billing cycle

The first step is to ensure that the debt or the interest costs do not spiral out of control,and a sure way to do this is to ensure that the entire outstanding amount is paid within the billing cycle. This is easier said than done,but many card holders use this strategy effectively by timing their purchase and repayment within the billing cycle. You could also become a convenience user by paying off all your bills within the grace period without any interest,but this option comes into effect only if the previous bill is also settled before the billing cycle or grace period.

Convert dues into EMI

In case of big ticket purchases,a cardholder can convert his purchases into equated monthly instalments. This option works like a consumer loan where the loan amount plus the interest component is converted into EMIs and repaid over a period of 6 to 24 months as instalments. Not all purchases are eligible under this option,the total purchase has to cross a minimum threshold limit and,in some cases,the purchase has to be only from specified merchant outlets. The purchases have to be converted into EMI within a period of 30 days from the date of purchase. Most cards offer two options under this category: low-interest option and interest-free option. Under the low-interest option,the interest rate charged is lower than the usual interest rate that would have been charged on the total purchase amount if the EMI option had not been exercised. In case of zero-interest option,no interest is charged for the entire period during which the total amount is repaid by way of monthly instalments; only a big ticket purchase from a selected merchant or a purchase above the minimum amount is eligible under this scheme. Generally under the zero interest scheme the tenor is comparatively short.

Balance transfer

In times of cash crunch,a cardholder can wisely opt for the balance transfer facility. Under this facility,the outstanding balance in one card is transferred to another card issued by a different bank at a lower interest rate. A balance transfer is often done either to avail a lower interest rate and thereby curtail spiralling interest cost or to consolidate the total outstanding amount under a single card to make it more manageable. The flip side of this facility is that the low interest rate is available only for the initial few months,and the account reverts back to the prevailing normal interest rate after this initial period of 3 to 6 months.

Generally,a processing fee of 1 to 2 per cent is charged on the transfer,and it usually takes 7 to 10 days for the balance to get transferred. Besides,the amount that can be transferred is generally restricted to 75 per cent of the total limit available in the new card. The cardholder shouldnt have failed to pay the minimum amount due under both the cards during the time of transfer. Some cards do offer the option of paying the amount transferred in EMIs like the SBI credit card.

Under extreme cases when the debt hits the ceiling,the best option would be to repay the entire amount with a personal loan. Personal loans do offer lower interest rates when compared to credit cards and are better manageable with regular EMIs. But credit card dues need not be paid always through the personal loan route,a controlled spending pattern and a well planned repayment strategy would ensure a well managed debt. The credit card should be used as an instrument to leverage cash flows,and this depends on how we develop the habit of spending responsibly and prudently.

Author is CEO,BankBazaar.com