In view of the disruptions caused by the recent Coronavirus (COVID-19) pandemic, banks are reaching out to the customers to know if they wish to avail the moratorium announced by the Reserve Bank of India to ease the burden of the payment of credit card dues. However, you must keep in mind that this moratorium is not the waiver but only a deferment of the payment. If you are struggling to pay your credit card bills due to the impact of COVID-19, there are a few options available that you can consider.
Some Options To Consider If You Can’t Afford To Pay Your Bills
During the time of this crisis, many credit card issuers are waiving payments and fees for the credit card holders who are struggling financially. However, all these relief programs are temporary measures and not a long-term financial solution.
- Review your financial situation: If you are facing troubles paying your credit card bills, it is advised to track your spendings to know how much money you need to fulfil the bare minimum needs. In such a situation, you can try making the minimum payment on your credit cards. Budget your money accordingly and try to save as much as possible.
- Consider taking a low-rate consolidation loan: Taking out a loan in this situation might not sound like an overwhelming option. However, if you have a decent credit score, you might be able to get a debt consolidation loan that could significantly lower your monthly payments and provide you with instant financial relief. On the other hand, a balance transfer credit card might provide you with the same benefit but on a short-term basis.
- Turn to your emergency savings: It is generally recommended that you should always hold emergency savings of 3-6 months worth of expenses. If you are facing troubles paying your credit card bills, you can use your emergency savings to help cover all the essential expenses. You will have to put limits to non-essential purchases and save as much as possible to avoid piling unnecessary debt.
- Consider taking 0% APR Cards: For all your basis purchases you can consider taking a credit card with 0% APR (Annual Percentage Rate). Such card offers no interest for over a year and also provides a comparatively longer interest-free period. However, even if you are using a 0% APR card you should avoid overspending to avoid falling into credit card debt.
- Budget your money accordingly: Make a proper budget separating your essential needs from the other purchases. Keep in mind how much money you need to fulfil all the basic necessities. Make a plan for how to spend your money accordingly so that you don’t get all piled up under debt.
Read more about Credit Card Returns and Refunds
Will You Benefit By Opting For Moratorium?
It is advised to go for a deferment plan only if there is an utmost need. Otherwise, if you have sufficient resources at your disposal, continue paying your credit card dues and don’t opt for a moratorium.
Do not avoid paying your credit card bill
The impact of deferment would be adverse in case of credit cards because they charge high-interest rates of approximately 3-4% a month for rolling over the balance. If you don’t pay for straight 2 months, the interest could add up to more than 6-8%.
Disclaimer: The details of credit card moratorium will be updated as and when received from the bank
How non-payment can significantly increase your credit card bill?
Here’s a quick illustration of how interest will continue to accrue on your outstanding balance and the additional expenses in case you choose not to pay your credit card bill.
|Credit Card Bill for the month of April, 2020||Rs.50,000|
|Additional purchases in April, 2020||Rs.30,000|
|Interest at 3.50%||Rs.2800 (Rs.50,000 + Rs.30,000 x 3.50%)|
|Credit Card Bill for the month of May, 2020||Rs.82,800 (Rs.50,000 + Rs.30,000 + Rs.2800)|
|Additional purchases in May, 2020||Rs.25,000|
|Interest at 3.50%||Rs.3773 (Rs.82,800 + Rs.25,000 x 3.50%)|
|Credit Card Bill for the month of June, 2020||Rs.1,11,573|
|Total Interest Charged||Rs.6573 (Rs.2800 + Rs.3773)|
Do keep in mind that the interest will continue to accrue during this period which you will be required to pay after the moratorium period gets over. Hence it is advisable to pay your credit card dues fully as possible to keep the interest charges down and to avoid credit card debt.
What Happens If You Don’t Pay Your Credit Card Bill?
If you don’t pay your credit card bills on time you would be levied with late payment charges, increased interest rates and incur damages to your credit score. In case you continue to miss your payments for so long, your card can be frozen and your debt could be sold to a collection agency.
Suggested Read: All you need to know about Credit Card Bill Payment
|Number of Missed Credit Card Payments||Consequences|
|1-2||● Late Payment Charges|
● Penalty APR
● Loss of introductory APR
● Adverse affect on credit score
|3||● Late Payment Charges|
● More damage to credit score
● Chances of account closure
|More than 3||● Late Payment Charges|
● Substantial damage to credit score
● Debt could be sold to a collection agency
● Legal Charges
The effects of missed payment are small at first but continue to increase with an increase in the number of missed payments. Though the consequences might differ from one credit card issuer to another.
The options mentioned above may provide you with some solutions to survive through the immediate financial crisis. However, you may try your best to find ways to boost your income in response to your expenses. Alternatively, you can also reach out to your financial provider to find out what all options are available at your disposal. The more you know about the choices, the more efficiently you will come to an agreement that works well for your situation.