6 smart ways to PAY OFF your credit card debt trap in India

POSTED BY Jagoinvestor ON May 11, 2016 COMMENTS (36)

1,90,000 crore was spent using credit cards in India in the year 2015. Over the last decade, the usage of cards has increased many folds and while that’s great for the economy, it also means more and more people getting into credit card debt as many people are now dealing with credit cards.

In the graph below which was published by Livemint, it shows the growth in the card usage in our country

credit card transactions in India

How investors get into Credit Card Debt Trap?

Credit cards if not used properly can get you into debt trap very easily. We get several emails and comments regarding how to handle credit card debt. Below is one of the comments

“I have a SBI card in which I have an outstanding balance of Rs 100000 so I went for settlement and they offered me a settlement amount of Rs.78000. Can it get it still reduced? Because I am not in a position to pay this amount”.

A lot of investors who do not use credit card in a wise manner end with a large outstanding on their cards and finally have to go for credit card debt settlement which lowers their credit score and puts a black mark on their credit report and this inturns hampers their chances of getting loans in future.

In this article, I am going to share some of the options which one can explore. If you want to quickly look over those 6 points, you can just watch the video below

Note that these points to be looked in order. I mean first, you see if option 1 is applicable to you or not. If not, then you move to option 2, if it still does not help you then you move to another option.

Option #1

Break your investments and pay the bill

Option #2 

Pay off the credit card debt in 5-6 payments

Option #3 

Take a loan from friends/family and pay off the credit card outstanding amount

Option #4

Take a personal loan to pay off credit card debt

Option #5 

Convert your credit card loan to EMI

Option #6 

Use a Credit Card Balance transfer facility

So here you go

Option #1 – Break your investments and pay the bill

There are many people who keep rolling their credit card debt, and at the same time have money in their bank account or a fixed deposit. It does not just strike them that they can just pay off the full outstanding by breaking their FD or cash into the account.

This happens out of ignorance most of the time.

So if you can restructure your money here and there and can pay off the credit card debt, it’s the best option.

Option #2 – Pay off the credit card debt in 5-6 payments

If option #1 is not feasible for you, then the next best option is to pay off the debt in 5-6 parts. Most of the people get too attached to the minimum balance amount and then they just stick to it because that’s the minimum required to be paid to save the penalty.

But then the interest is anyways to be paid, which makes sure you never get out of the debt.

So go beyond the minimum balance amount and pay 3-4X of the minimum balance each month. For example, if your credit card debt is Rs 2 lacs and the minimum due amount which can be paid is Rs 10,000.

Then try to pay 2-3X of that amount, which is Rs 30,000 or Rs 40,000 per month. If not that much, then at least 20,000. That way at least you will pay off the entire debt in next 1 yr if you are disciplined enough.

minimum due payment credit card debt

Option #3 – Take a loan from friends/family and pay off the credit card outstanding amount

The 3rd option is to try to get some loan from friends or family members and pay off the credit card debt in one go and then pay back the person later as per what you agreed with him/her. One can often get free loans without any interest from a close friend or a sibling if you communicate your problem well.

Make sure you pay them back exactly within the time frame mentioned.

Most of the people have burned their fingers by giving money to their friends and relatives because it gets very tough to ask back the money and it can bring sourness in the relations due to money matters.

So you can also choose to pay some interest because the person can anyways earn some money from FD, so better offer to pay 10% interest per year. It’s a win-win situation if it works out!

Option #4 – Take personal loan to pay off credit card debt

If you don’t get loan from someone close in family/friends, then you can go for a personal loan and use that money to pay off the card outstanding. Interest will be in the range of 14-18%, but still, it’s better than paying 40% on a yearly basis.

This does not clear your debt, but just shifts your debt from credit card to a personal loan. Much better option. For those who already have a home loan going on, they can also look at the top-up loan facility which will be much cheaper to a personal loan.

Option #5 – Convert your credit card loan to EMI

If you are not getting a personal loan, then you can convert your debt to an EMI option from the same lender. Almost all the big banks give an option to convert the credit card debt to EMI for tenures like 3/6/9/12/24 months. The interest can range between 13-18% depending on the lender.

convert to EMI credit card

Option #6 – Use a Credit Card Balance transfer facility

There is a facility called Balance Transfer provided by many credit card companies, where you can switch your current credit card outstanding to a totally new credit card. In this case, the new credit card will pay off your old credit card and will also offer you some benefits like an interest-free period of 3 months or low interest for the first few months.

credit card balance transfer facility

Almost all the major credit card companies like SBI credit card, ICICI credit card, and HSBC have this credit card balance transfer facility service with them. SBI credit cards even provide 0% interest for the next 60 days.

However, before opting for this option, please check if there is any processing charge or not? It might happen that the lender is providing free interest period, but then high processing fees will nullify the advantage 🙂

However, note that this is a temporary solution for the next 2-3 months and by that time you should look for further solutions.

Use your credit card wisely

Below are some high-level points which will save you from getting to credit card debt

  • Pay your Credit Card 3 days before the due date, keep a reminder on the phone if it helps
  • Don’t spend much more than you can afford.
  • Carry debit card instead of credit card, You will pay only what you have
  • Don’t keep very high credit limit, if you can’t control yourself when it comes to spending

Please share if you have any more solutions?

36 replies on this article “6 smart ways to PAY OFF your credit card debt trap in India”

  1. Lav says:

    Hi Manish, I see that your blog is amonst the top most personal blogs in India. Congratulations.

    I have a quick query?
    I have a outstanding of 1.15 lakhs on my hdfc credit card. if I pay in 6 months – 20 k each. how much will be interest?
    can I get a personal loan for 6 months?

    Appreciate your reply.

    1. Taking a personal loan and paying off the credit card loan is a good idea, how ever I am not sure if you will get it this wya.

      SO the best option is to pay 20k each month and close the CC debt in few months

  2. Rajiv says:

    I have an outstanding amount of 80K on my credit card. Can I take a one time personal loans to clear this. If so which banks/institutions offer the least interest rates on personal loans as of today. kindly help.


    1. I think that would be a better choice !

  3. CC says:

    Hi Manish. I have some question and looking for its answer.
    1. Does consumer loan like bajaj finance affect the cibil score?
    2. I have taken four consumer loans from bajaj finance and have closed two of them. The other two are still ongoing. I had missed one EMI of one loan but paid it in the same month. Would it affect my cibil score?
    3. Does having more loans active in my name at a time reflect myself as a credit hungry person?
    4. If I close all my loans and dont take any loan for next five years, would it improve my credit score?

    You reply would be appreciated

    1. 1. Yes, every loan does

      2. Not much

      3. Yes, thats correct

      4. Definately.

  4. Hory says:

    i do not carry a credit card. That is my simplest way of staying away from it. I spend whatever i can afford and debit card does that exactly. I am working for the last 13 years and have used debit cards throughout. Previously debit cards and net banking was not a prevalent payment option in many online transactions. However today it is not the case. Almost all online transactions can be done using net banking or debit cards. Helps me stay within my limits.

    1. Thanks for sharing that !

  5. smanand says:

    I do pay my credit card bill through auto debit and maintain balance in my account.

    1. Whats the question?

  6. Surendra says:

    As long as you have control over your spending, using credit card is a good option. Credit card helps you in the below ways. 1) Need not carry the exact change when you buy items in any malls or super markets / Buy items that you need not want to round of the bill, by paying the exact amount through credit cards. 2) Use Petro Credit cards for Petrol / Diesel and use the reward points for Petrol / Diesel. 3) Use options like smart pay of HDFC bank and let the credit card pay the routine bills (Power, Mobile, Telephone, Insurance etc.,) without any extra charges and get Points credited to your account. But all this works only if you pay the Credit card bill in time. One more thing i have done is I have the Credit card payment due date in the first week of the month so that I repay it immediately after I receive my salary.

    1. Hey Surendra

      Thanks for sharing your experience with all of us. It was a great learning.


  7. santonu says:

    Sir is there any advantage if credit card bill is paid well before due date

  8. vipul says:

    One can also explore option of paying credit card bill using shopping reward points accumulated. Not every credit card company offers this convince currently, few do provide this facility.
    While paying with reward points may not help in long run or even lower your outstanding by a big difference it can still help if your card have this option and facing cash crunch.
    While it is also important to remember, not to overspend just because your are getting reward points for spending.

    1. Thanks for sharing that vipul

  9. ali says:

    The instantaneous gratification takes over my long term thinking in a flash. so I prefer to pay in cash, preferably in 100 INR bills. The mere feeling of so much money leaving my hands helps to put things in perspective. For online spends, I compare it with a commodity- a 10K gadget is equivalent to my annual supply of beer 😉

    1. Thanks for sharing that ali

  10. Mahesh says:

    Here is how I do it.

    I have Liquid Fund Direct Plan. I keep money here for all near future expenses. And I also have one credit card. Whenever any expense arises, if my credit card spending would be less than money available in liquid fund, I use credit card. If I do not have cash in liquid fund, I do not do that transaction.

    Here is the benefit of it.

    For our annual vacation, over the period of few months I accumulated 1lac in my liquid fund, which pays 8% interest with no exit load. Now at the time of paying bill for vacation, which is around 80k, I used credit card (as I have 1lac in liquid fund). I will receive Credit Card bill next month. Till that time, my liquid fund will earn me interest for a month. Plus I already got reward points for doing large transaction on Credit Card. Just 4 days before bill due date, I will transfer liquid fund money to saving account and pay off my credit card bill.

    I have been doing this for some time now. Of course, you must not spend on unnecessary things but I pay all necessary bills and payments through Credit Card while putting equivalent part of salary in liquid fund. So I end up earning from both sides.

    1. Thanks for sharing that Mahesh

      I have marked your reply and will use it in my next article some time titled – “How to effectively use credit card to your benefit?”

    2. Vamsi says:

      This is what exactly I do and liquid fund redemption will take 1 day time and we can pay the credit card bill even last day with NEFT payments. Just we need to plan effectively 🙂

      1. Kiran says:

        I have opted for auto payment option in HDFC bank, so I don’t have to remember bill date, it will be automatically paid by bank.

        1. Yea , I do that in ICICI and it works well

          1. Kiran says:

            I have transferred my policy payments to Credit card smart pay . By this I got 2% cashback on card and points extra and there is no worry to miss any premium or bills

            1. Thanks for sharing that Kiran

    3. Anand says:

      What is the name of the Liquid Fund Mahesh?

  11. Yashwant says:

    Better use cash for payments it affects spending habbit of a person. As far as credit catd usage is concerned it should be used for only recurring expenses like groceries and bill payments in return it gives interest free amount and some cashback points

    1. Thanks for your comment Yashwant

  12. Shravan says:

    Hi Manish,

    Great Options to Clear Credit Card Debts..

    I think most important point is :

    Always pay full amount in credit card not minimum due this is where you get good credit score as well as interest free time of 30 to 40 days which is the actual purpose of using credit card.

    I would say simply we should keep in mind that we are borrowing money for 30 days time as long as we pay full amount rest assured with good credit score.


    1. Thanks for your comment Shravan

  13. Vijay says:

    Since last ten years, I have been following one simple rule while billing on credit card: Spend only what I can afford to spend with a debit card and pay the dues 7 days in advance. My credit score is now > 850.

  14. Vamsi says:

    NEFT payments can help to pay credit card bill in last minute hurdles if any

    1. Thanks for your comment Vamsi

    2. Thanks for your comment VamsiThanks for your comment Vamsi

    3. Sagar says:

      Thanks for the info, but I will go 1 step ahead.
      Axis Bank and IndusInd provide payment of Credit card dues by IMPS which is INSTANT and free of charge by many banks. Citibank does not allow IMPS payments to credit cards.
      NEFT is charged and takes 4 hours and does not work on Holidays and after Banking hours.
      I once paid my credit card bill on a Sunday night which was the last day of payment , just to prove my point to myself. It got credited immediately. Think about it. 🙂

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