Carrying Rs 1 lakh in credit card debt can quickly become an expensive financial burden. If your outstanding balance attracts high interest, you may end up paying significantly more than the amount you originally spent.
For borrowers looking to reduce this cost, converting the outstanding balance into a credit card EMI (Equated Monthly Instalment) or taking a personal loan to repay the card dues are two options worth considering.
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A personal loan is an unsecured amount of money borrowed from a bank or financial institution. Personal loan interest rates usually start at around 10% in India, and the minimum tenure is typically 12 months. On the other hand, a credit card EMI lets you convert a large purchase or your total outstanding credit card balance into fixed, smaller monthly payments over a set period.
Credit card EMI interest rates in India typically range from 12% to 24% per annum (about 1% to 2% per month), depending on the bank and your repayment tenure.
Rs 1 Lakh In Credit Card Debt:
Assuming that you plan to take a personal loan at an interest rate of 10% to repay this debt, here's what the math might look like:
Loan Amount: Rs 1,00,000
Interest Rate: 10%
Time: 1 year
Monthly Payment: Rs 8,800
In this case, you will end up paying more than Rs 1,05,000.
Solving Debt With Card EMI:
Assuming that the credit card EMI comes at an interest rate of 14% over 12 months, you will end up paying:
Transaction Amount: Rs 1,00,000
Interest Rate: 14%
Time: 1 year
EMI Amount: Rs 8,979
Total Interest Amount: Rs 7,745
Total Payable Amount: Rs 1,07,745
This means that this option is slightly more expensive compared with a personal loan.
What To Consider?
When choosing between a personal loan and a credit card EMI, there are a few things to keep in mind. Credit card EMI is useful when you want to convert a particular purchase or card dues into smaller payments.
A personal loan gives you more freedom to use the money for different needs. Personal loans also offer longer repayment tenures, which can make monthly payments more manageable.
Ultimately, choosing between the two options depends on your interest rate, repayment capacity, tenure and overall cost. This is why it is recommended to compare the total interest and fees before making a decision.
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