Use credit cards elegantly

A characteristic free credit period in India is 45-51 days. If you pay off the dues within this period, the interest is saved. If in case you are unable to pay off the entire amount within the due date, a common practice is rolling over the dues after paying the minimum amount. This could be expensive as you would have to pay an interest of about 3 % per month and the new purchases made will not get any interest-free period until the dues are completely settled. So, here’s a quick look over the other schemes offered by card companies to clear off credit card bills.
Balance transfer
If you opt for Balance Transfer, you can transfer the outstanding balance from one card to another, and thereby extend the repayment period.
Process
A balance transfer can take place between any two banks. The process takes 7-10 working days with a processing fee, and a maximum of 2 % will be levied.
Low interest rates or sometimes zero interest rates are available for balance transfers.
Points to be taken care of
Check for hidden charges or if the bank charges a transfer fee in addition to the processing fee.
The low interest rates the banks offer on balance transfers may be for an introductory period and once this period is over, it may return to the normal rates.
It is important to note that the credit limit of the card on which your new due is, will be reduced proportionately. Also remember that the balance transfer amount will be limited to a maximum 80 % of your credit limit.
EMIs on credit card loans
If you are having a problem in paying the entire credit card bill at one go, a good option is to convert it into EMIs. This facility is similar to a personal loan. But here, unlike personal loan there is no paper work and no waiting for approvals either.
Another advantage here is that you need to pay a lower interest rate of about 1.5 to 2 % whereas the normal credit card rollover interest rate is higher than 3 %. Also, while this scheme is running, one still gets the interest-free period on new purchases.

Personal loan as a short-term finance option

In the last few weeks, calls from telemarketers have already gone up asking you to sign up for personal loans. The difference this time is that most banks want to lend to their own customers and in many cases, customers are being offered pre-approved loans to cut down on processing time.
While a personal loan is a short-term finance option, it is often used by many for long-term needs. In the process, a borrower ends up paying up a higher interest amount if he fails to clear the loan on the due date. On the contrary, a personal loan can be a handy option if chosen with care.
How to make better use of a personal loan?
Some tips to help you make better use of a personal loan:
Compare total interest payable
A personal loan with an interest rate of 14-28 percent is a better option than a high cost credit card loan as the latter charges interest in excess of 35 percent.
The same holds good for those who are in the habit of taking hand loans which carry higher rates. For such borrowers, a personal loan would be a cost-effective option and more importantly, it enables the borrower to repay the loan in totality.
Repay the loan in short to medium terms
Often, salaried professionals use a personal loan as a component of property investment. The margin money of the property cost is funded by a personal loan.
The idea is good provided the borrower is in anticipation of some funds coming in a few months later, and is in a position to clear the loan. Or else, the loan amount should not be more than a few lakhs so that it does not pinch the borrower considerably.
For instance, if a property investor is short of funding to the extent of Rs 2-5 lakhs for a property which is valued in excess of Rs 50 lakhs, the implications would not be severe. On the contrary, if the borrower depends on the personal loan to take care of more than 25-30 percent of the property cost, the chances are that he would be unable to repay the loan in the short to medium terms.
EMI a determining factor in personal loan
Keep track of EMI
Unlike other loan products, the EMI is the determining factor in a personal loan.
Since the loan is for a shorter period of time, the EMI is much higher, which is also the reason why some struggle with their cash positions after signing up for a personal loan. Hence, a personal loan should be determined by the EMI component rather than just eligibility.
This will help the borrower to be realistic with the loan repaying capabilities and not get into a default.
Keeping good credit track record
Be a good borrower
Signing up for a personal loan may be the easiest thing to do but make sure to be a good borrower as non-repayment or lack of commitment towards repayment can tarnish the creditworthiness. With banks providing details of all borrowers to the common database under the Credit Information Bureau (India) Ltd (CIBIL), a negative entry relating to payment history can make it tough for all future loans.
Also, borrowers need to make sure to complete the documentation relating to disputed loans as a failure to do so may make it difficult for future borrowing.