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Does It Make Sense To Take A Personal Loan To Clear Credit Card Dues? logo 15-06-2021 Adhil Shetty
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Does It Make Sense to Take a Personal Loan to Clear Credit Card Dues?

Adhil Shetty

Q: Hi, Adhil. I couldn’t clear my credit card dues for a few months last year and now it has increased to Rs. 1 lakh. My finances have started normalising now but I don’t think I can still afford a one-time payment. Should I then take a personal loan to clear my card dues? Kindly advise. – Rajat (name changed)

Ans: Hi there. Unpaid credit card dues tend to snowball quickly due to the associated monthly interest charges, and their clearance must be prioritised to minimise adverse impacts not just on your finances but also on your credit score. That being said, you need to carefully evaluate your options. In terms of your query, my observations are as follows:

Taking a personal loan to clear your card outstanding could make sense – if you get one at a lower interest rate than your credit card interest charges and with desirable repayment terms. Personal loans are currently available starting at 8.9% p.a. and can go up to 24% p.a. or even more depending on the lending institution and its terms applicable to you. You’ll also be well-advised to compare different personal loan offers across various banks to find the deal that best meets your requirements. You can also check whether you’re eligible for any pre-approved personal loan offers from your bank(s) for faster loan disbursal. Major advantages of taking a personal loan include your credit card dues can be cleared in one shot preventing snowballing interest charges, the lower rates would translate to lower EMI obligations, and your credit card’s credit utilisation ratio would go down that will help in improving your credit score over time. However, if your credit score has already gone below 650 for not paying your credit card dues in full in the past, you might find it difficult to get a personal loan with desirable repayment terms. Also, the personal loan interest rate applicable to you would be determined based on your credit score and current income among other eligibility requirements.

You can also check with your credit card-issuing bank whether your outstanding dues can be converted into EMIs to make it easier for you to clear the dues with the help of instalments rather than a one-shot big-ticket payment requirement. Check for applicable rates and associated terms and conditions before finalising your decision.  You can also check whether you can transfer your balance to another credit card (with a different bank) and clear the dues within the promotional low or zero interest period.

If none of the above-mentioned ideas work for you, consider taking a secured loan like a gold loan, loan against an FD or mutual fund investments, etc. to clear your card outstanding after carefully comparing your options. These loans could be available at lower rates than even personal loans but the interest rate applicable to you would be determined based on the value of your pledged collateral among other terms and conditions of your chosen lender.

In conclusion, regardless of the route you take to clear your credit card dues, ensure you make the repayments in full on time to prevent further damage to your credit score. Also, going ahead, try not to breach your budget for monthly credit card expenses and ensure you clear your dues in full within the interest-free period every billing cycle to avoid any accumulation of debt.

Have a question on personal finance? Ping me on Twitter at @adhilshetty with the hashtag #AskAdhil. The writer is CEO,, an online marketplace for loans and credit cards.

Looking for a personal loan? Check out some of the top loan offers based on your eligibility and stand to get 100% paperless approval on your chosen loan product. Looking for a credit card instead? You can also check out some top credit cards here.

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