iDentistry The Journal identistry_may_aug2019 | Page 37

The Journal
The CIBIL score or credit score with any other
bureau in the country, is essentially a summary
of our past credit history as a borrower. It details
the loans or card accounts availed of by the
borrower, and the repayment details thereof.
Hence, not making a payment or defaulting on
our loan will in turn become a part of our
long–term credit history, and negatively impact
our credit score. A default signifies to the lender
that there is a far deeper problem with the
customer’s finances than for example just a
delayed payment. This will lower our score and
make any future borrowing difficult.
How can this be corrected?
Firstly, if we think that we will be making
deferred (or delayed) payments for say the next
two months, it is a good idea to speak to the
concerned financial institution. They may be
able (and willing) to help by working out a
revised repayment plan with us. On the other
hand, if it looks like our financial troubles are
long–term; it may be wise to take the advice of a
credit counselor who can best guide us to make
the right decisions. Finally, we should know that
it is not an impossible task to clear CIBIL issues,
even though it may appear difficult in the initial
stages.
Credit Card Debt and How to Get Out of It?
Credit cards can be a great addition to our wallet
but only if used wisely. Reckless use of our
credit can result in a debt spiral that can ruin our
budget and eat into all our future income.
However, credit card debt is not a life sentence.
There are multiple ways how we can get rid of
the debt pile and start afresh. If we are already
in credit card debt, there are better alternatives
to take on expensive credit card debt and we
can go in for various debt reduction plans and
some strategies to stay out of debt. Sometimes,
a large expense can’t be planned for, especially
in an emergency and it is necessary to borrow
money to cover it. Below listed are the five most
effective ways that could significantly reduce
37
borrowing cost compared to carrying a credit
card balance and help us to get out of credit
card debt:
1. Personal Loans:
Credit cards charge a huge interest rate; on an
average 36–48% per annum whereas personal
loans interest rates vary from 10% to 15%
(significantly lower than the Indian national
average of 41% for credit cards). A personal
loan is a great option when we need funds
quickly. A personal loan can be obtained from a
lender for any purpose like to cover an
unexpected medical procedure. While some
personal loans can take up to a few days to
acquire, some banks in India also provide them
as soon as the same day. Importantly, most
banks have income requirements to obtain a
personal loan and they tend to prefer applicants
who are employed with salaries. However,
there are also options for low income earners or
self-employed individuals. We can take
advantage of a comparatively lower rate of
interest and save on the overall interest
payment by taking a personal loan to
consolidate multiple credit card debts.
Moreover, we can streamline our finances
better when too many credit card debts are paid
off using the personal loan as there would be
only one EMI to pay in place of multiple credit
card dues. Let us understand the above with the
help of an example. Suppose a person has a
credit card debt of ` 1 Lac. If they plan on
carrying the debt on credit card then they will
incur an annual charge of 24–48%. Let us
presume it is 30% (Average); meaning if they
take a year to pay off the debt then they will have
to pay ` 1.30 lacs (at a presumed average of
30%). However, if they take out a personal loan
instead of carrying the debt then they will incur a
compound interest of 10.99% (average). This
means they will have to pay only ` 1,06,052
through an EMI of just ` 8,838. Hence, we can
see, taking out a personal loan is much better
way to pay off rather than carrying the hefty debt
with interest on credit card.
Vol. 15
No. 2
May-Aug 2019