The thing with credit cards is that it allows you to spend money and get 45 days to pay it back. All is good if you can pay back the money by the due date. In case you fail to make a payment, interest starts accumulating.
The best and the most ideal thing is to pay all your credit card dues by the due date. In case you cannot, you can make a minimum payment, but that is not a good idea as very high interest rates of up to 42 per cent accumulate on your remaining balance.
Convert Your Credit Card Outstanding Into EMIs
Credit card companies offer a way out in such cases. You can convert your credit card outstanding into equated monthly installments (EMIs) and pay it over a certain period.
The first thing to check is whether the bill is eligible to be converted to EMI. If it is, you can do it either online or by calling the phone banking officer.
However, converting your credit card outstanding to EMI comes with certain conditions.
First, the amount you convert into EMI will be blocked from your credit limit. So, if your credit limit is Rs 2 lakh and you have converted Rs 1 lakh into EMIs, then your credit limit is Rs 1 lakh till you have paid all the EMIs.
This will also mean that your credit utilization (CUR) ratio will be affected. Ideally, your CUR should not be more than 30 per cent. In the above case, now you can spend up to Rs 30,000 instead of Rs 60,000 without impacting your credit score.
Converting your credit card bill into EMIs does not affect your credit score as long as you pay the EMIs on time. If you fail in paying your EMIs then your credit score will be affected.
Credit card EMIs will also not affect your credit history. It will mean that you do not have to pay late payment charges. So your credit score will remain unaffected.
Interest Rates
If you fail to pay your credit card bill, the interest charged is 36- 42 per cent. If you convert your credit card outstanding to EMIs, the interest charged is 12-18 per cent on a monthly reducing rate. The tenure is three months, six months, or twelve months. So converting your outstanding into EMI is a good idea if you cannot pay your bill.
The EMIs will be billed along with your credit card statement so you have to pay your credit card bill plus your monthly EMI, till the EMI is cleared.
To sum up, in case you choose to opt for credit card EMIs, it means that you need to cut down your expenses on the credit card drastically so that you do not miss paying your EMIs. Without financial discipline, you may eventually end up in a debt trap.
