Credit cards: Balance transfer can reduce debt; Lower interest rates will allow you to pay the principal faster



By Adhil Shetty

Credit cards are popular financial tools; they allow consumers to convert their large purchases into EMIs. This feature also enables cardholders to make expensive purchases more affordable by spreading the cost over several months. Flexible repayment options, such as interest-free periods and the ability to pay the minimum amount due, provide additional financial flexibility to consumers.

The recent RBI data show that credit card dues crossed the Rs 2-lakh crore mark in April 2023, which is a significant increase from the previous year. There could be several reasons for higher spends like the rising cost of living or increased consumer confidence. However, the latest RBI’s Financial Stability Report shows non-performing assets in credit card segments for public sector banks was 18% as of March 2023 as compared with 9% a year ago.

Consumers should be cautious about their spending and manage their credit card debt wisely. So, what can credit card holders do to manage their debt? Here are some tips for consumers.

Pay dues in full

Overspending can lead to accumulating high-interest charges, making it harder to repay the debt and potentially causing financial stress. Spend what you can comfortably afford to pay off in full each month. Create a budget to ensure you are spending within your means and prioritise essential expenses over discretionary ones.

Pay your credit card dues in full because the interest charges are high. Avoid paying only the minimum payment on your credit card, as it can significantly extend the repayment period and increase the total interest paid.

Prioritise high-interest debts

If you cannot afford to pay in full, make a minimum payment each month to avoid late payment penalty. Constant failure to pay on time may impact your credit score. If you have multiple credit cards or loans, focus on paying off the ones with the highest interest rates first. This strategy allows you to minimise the overall interest you will pay overtime.

Consider balance transfers

Transferring high-interest balances to a card with a lower or 0% introductory rate can provide temporary relief and allow you to focus on paying down the principal faster. Be aware of any balance transfer fees and ensure you can pay off the transferred balance within the promotional period. If you have multiple debts from various sources, consolidating them into a single loan or line of credit may simplify your repayment process. This approach can potentially lower your interest rate and provide a structured repayment plan.

Avoid accruing debt

While managing your existing debt, it’s crucial to avoid incurring new debt. Resist the temptation to make unnecessary purchases with your credit card and focus on improving your financial situation. Remember, it is essential to address credit card debt proactively to avoid it snowballing into a crisis. By maintaining a disciplined approach to your finances, you can regain control of your credit card debt and work toward a more stable financial future.

The writer is CEO,


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