I am 41 years, married and residing in Dharwad. I couple of years ago I availed a credit card from a bank as I was in financial difficulty and now have an outstanding balance of INR 1.5 Lakhsto repay. I regularly pay the minimum due each month. A friend has suggested I avail a personal loan and pay off the credit card dues. Is this a good idea? Will my credit score be affected?
Minimum Amount Due (MAD) is the minimum amount you pay to the bank by the due date to keep your account regular and avoid payment of any late payment fees on the credit card. MAD is typically 5% of the balance outstanding on the statement date. If you keep paying MAD, you have to bear a high interest cost and you cannot enjoy interest free credit period. This is just a short term measure: As your friend suggested; you must pay off the credit card dues. Try these methods: The rate of interest on personal loans is significantly lower than the interest rate charged by credit cards. Credit cards charge interest around 24-36% a year on outstanding dues. Personal loans charge just 13-20%a year. Avail a personal loan and pay off credit card dues. Convert credit card dues into easy EMI's. You pay a portion of the principal loan amount along with interest each month and thus, clear off your dues over a period of time. Check interest rate/processing fee/service tax with the bank. Borrow from family and friends and repay credit card dues. Your family/friends may give you interest free loans. If you pay MAD regularly, your credit score is not affected. With a good credit score you can easily avail a personal loan and pay off dues.