As the finance industry is frequently changing with the requirements and events in the world, the moratorium has emerged as a savior to many people who have a loan sanctioned in their name. Though, the question is- Is it really a savior?
What Is Moratorium?
The term moratorium refers to the relaxation provided in paying the EMI for the loan already issued. The generic term for this can be EMI holidays, and is allowed in cases to combat the temporary financial problems such as the one we all are facing today – the Covid-19 pandemic.
Understanding The Credit Card Moratorium
In lieu of the tough financial situations, the credit card moratorium has been advised and imposed by the Reserve Bank of India, all the banks operating in the country. Being true of its meaning, the credit card users can now choose not to pay the dues 31 August, 2020. This can be implemented as there are disruptions in business, and the earnings have been impacted badly.
Though, it is essential to note that this does not mean that the bill need not be paid, only the time period is extended. So, give it another minute and get to know all essentials about the credit card moratorium.
Understanding The Time Period’s Significance: The credit card moratorium was brought into effect for a time period of 6 months only, starting from 1st March 2020 to 31st August 2020.
If any cardholder opted out from paying their monthly dues during this period, the credit card moratorium became active for them. As per RBI guidelines, Indian bank(s) will not be asking for any payment only until August 31st. Though, the cardholders shall pay the due amount as reflected in their September statement.
Interest Is To Be Paid: Even though the relaxation was provided to not pay monthly credit card installments for 6 months, it did not offer any relaxation for the interest being charged for these 6 months. Although there will be no late fees charged for the time period of moratorium. This interest amount will have to be paid with the complete principal instalment, once the credit card moratorium period is over.
Impact On Credit Score: As per the directions from RBI, the credit score will not get impacted for the cardholders opting for the moratorium. However, in case, when an individual uses its complete credit limit and then additionally chooses for the moratorium on the same, it can be a tricky situation.
In such cases, the CUR (credit utilization ratio) will continue to remain high as the dues are not paid, and it is one of the factors taken into consideration when calculating the credit score. Hence, a higher CUR for as long as three months can impact the cardholder’s credit score unless the minimum due amount is paid or the expenditure is distributed to other cards.
Fighting off High Debt Accumulated Over The Moratorium –
One can use the following innovative methods to conveniently pay off their credit card principal and interest in a bearable manner:
1. Availing Personal Loan – the interest charged on your credit card dues is much higher than the interest charged by the banks on personal loan. One can avail a personal loan at a relatively lower interest rate to pay off higher interest credit card dues.
2. Convert Outstanding Amount to EMI – Sever credit cards companies allow credit card dues to be converted into EMI such as SBI which offers this service under the name Flexipay EMI. However, this option is less preferable than personal loan since the interest being charged on EMI is higher than that being charged on personal loans.
3. Paying Just the Minimum Due – Credit card allows users to pay only the minimum due however, this option should be seen as a one time emergency measure, the amount which is not paid attracts high interest and is added to your next payment cycle.
4. Transfer Amount To Other Credit Card: Certain credit card which charge lower interest rate allow you to transfer your credit card dues from other cards to such lower interest charging cards. However, it is poignant to note that even the lower interest charged by such cards is higher than the interest charged on personal loans.
Conclusion
The best way out of the credit card moratorium debt is a personal loan, nothing else comes
even close.
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