Use personal loan to pay the money: Taking out a personal loan is not advised usually. But if you have credit card debt, do explore the option of a personal loan. Credit card overdue attracts high-interest rate that could go up to 36-40 per cent per annum or more, but a personal loan could come at much lower rate of interest of 11-24 per cent, “If you think your credit card dues are unmanageable, the best idea is to take a personal loan for debt consolidation to clear off all your dues and direct your repayment towards a single source,” says Aditya Kumar, founder and chief executive officer, Qbera.
Go for calibrated repayment: One of the other ways of paying off your credit card loan is to use the ‘snowball’ method, where you steadily clear off one due after the other. This would gradually ease the repayment burden. “You can also use the snowball method and clear the smaller balances first. By clearing out the balance on even a single credit card, you would improve your credit score and also the credit utilisation ratio,” says Khosla.
Liquidate investments: You may find this bit strange, but do give serious thought to it. Your credit card debt attracts 36-40 per cent interest in some cases. None of your investments can compound at that pace. It is a good idea to break fixed deposits and other low earning investments to retire the credit card debt. Please note that this can be done once in a while. If you keep doing this every now and then you will be left with credit card debt and zero savings for a rainy day. “A borrower can consider liquidating some of the short-term investments — be it systematic investment plans, bonds, debt funds or bank deposits. But remember, while doing so, it is always advisable to choose low-yield investments instead of sacrificing the well-performing funds,” says Kacker.
Top-up and other loans: You can also choose to go for a top-up loan. A top-up loan is available along with an existing home loan. If you have been servicing your home loan for more than two years successfully, there is a high chance you will get a top-up loan. The lender will conduct due diligence on the property and your repayment capacity and approve the top-up, which can be used to service the credit card debt. “Unlike credit card bills, which have a 45-day settlement window, top-up loans allow you to design a repayment plan according to your own financial situation. Thus, a secured loan can surely be a way out of credit card debt,” says Khosla. A point to note is that these loans are attractively priced. The rate of interest is close to the rate of interest of the home loan, but there is no tax benefit associated with it.