Benefits of Personal Loan to Repay Credit Card Debt

Credit cards can be considered as useful money management tool. They provide an interest-free credit period to the credit card holder, ranging from about 20-50 days from the date of transaction. This credit period starts with the date of transaction and can extends up to the due date of the credit card billing period.

However, the availability of this easy credit, with one simple swipe or OTP (One Time Password) can sometimes cause the credit card holders to spend more than what can be comfortably repaid with monthly income.

Making lifestyle expenses through credit cards is the primary reason for credit card debt to mount.  But, even one-off expenses through credit cards, e.g. medical emergencies, etc. can cause credit card debt to be exceptionally high.

If you see your credit card statement, you would notice that the payable amount column displays two amounts – Total Amount Due and Minimum Amount Due (MAD). The total amount due is what the total spend on the credit card has been for the entire month and should ideally be paid on a regular basis. MAD represents a certain percentage of the total amount due, generally 5%.

By paying only MAD, the card holder only avoids any late payment/ no payment penalty but is still liable to pay interest on the outstanding amount. If one is serious and sincere about a clean credit record, paying only MAD may not be very helpful.

In such times, one can avail of a personal loan instead to repay the credit card outstanding to reflect better financial management as this signifies a responsible credit behaviour on the part of the borrower/ credit card holder.

Here are the benefits of availing a personal loan to repay your credit card debt:

1. Preventing Adverse Impact on Credit Score

When one does not pay the total outstanding, but only the minimum amount due, the rest of the amount reflects as an overdue amount in the bank records. The same information is shared by the banks with the credit information companies as well, which gets captured into the credit history as well.

Continuous reflection of such overdue amount in the credit history can adversely impact the credit score, as the repayment history of the borrower is an important parameter affecting the credit score. This can not only impact the current credit limit for the credit card but may also impact further access to the credit for the credit card holder.

Further, many banks have started linking credit score with  interest rates for the borrower. Hence, other bank loans may also get expensive for the borrower due to lower credit score.

Taking a personal loan to repay credit card debt can help an individual to clean their credit history. However, one must make sure that the personal loan is repaid as per the schedule agreed with the bank.

2. Lower Outgo on account of Interest

When one pays the minimum amount due on credit card, the bank policies generally take away an interest-free credit period and start charging interest for the credit availed from the day any transaction happens. As such, if one makes the transaction on day 1 of the billing cycle, one may be liable for at least one month’s interest on such transaction.

Further, credit cards generally charge 1.5%-3% interest per month, and thus, credit card outstanding continues to snowball unless one takes appropriate action to clear the entire outstanding amount. Such interest outgo further gets magnified due to additional 18% GST charged on this interest amount.

On the other hand, when one takes a personal loan to settle the credit card dues in one go, the interest-free credit period is again available to the credit card holder. Also, the interest outgo is reduced on account of relatively lower rates on personal loans, when compared with the credit card interest rates.

3. Systematic Approach to repay Debt

When one pays MAD, the higher interest costs eat into most of the amount repaid. The principal amount continues to stand tall, and an individual continues to get sucked deep into the debt trap. With interest levied on revolving credit availed by the card holder, there is no specific time frame in which one can expect the credit card debt to be repaid.

On the other hand, if one avails of personal loan and pays off the entire credit card outstanding, the personal loan repayment schedule can chalk out the action plan to get free of debt in a systematic manner.

A personal loan can come handy when one plans to settle credit card dues and come out of the debt trap. Money View Loans provides an easy option to avail personal loans between Rs. 10,000 to Rs. 5,00,000, wherein the credit score and loan eligibility are checked in real-time basis. Further, the loan disbursement also happens quickly into the bank account directly.