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What are the best ways to pay off a large credit card balance quickly?

Posted on 09 Feb 2024
Author: Sayan Sircar

Tags: Reader Questions ; Loans

6 mins read
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This article gives the list of people to whom you can give or receive gifts like cash, property, stocks, mutual funds or any other assets without paying tax.

What are the best ways to pay off a large credit card balance quickly?

This article is a part of our detailed article series on the concept of paying off loans. Ensure you have read the other parts here:

My EMIs take up all my salary. How do I start investing?

This article shows a few ways to avoid and escape from EMI traps to be able to invest via goal-based investing.

Which debt to pay off when you have more than one loan?

We discuss the two common debt payment methods that exist which can be used to easily pay off multiple loans: the avalanche and snowball methods.

📚 Topics covered:

Context of the article
Payment option 1: Personal loan
Payment option 2: Selling shares or mutual funds
Payment option 3: Balance transfer to another credit card
Payment option 4: a top-up home loan
A consideration for processing times

This article answers a question from our Facebook group.

Question on the Arthgyaan Facebook group

Please feel free to join the private Facebook group to ask your own questions here:

See the actual post on Facebook.

Context of the article

Recently, I bought a house, and due to some last-minute changes, I had to use my credit card for 8 lakhs. Initially, I thought I could convert it to a 6-9 month EMI and pay it off quickly. However, I’m now unable to convert it to EMI, and the bank states they can’t assist. I’m comfortable repaying the entire 8 lakhs in 6 months, but I’m unsure how to handle this without incurring interest on the full amount.Because If I don’t pay whole 8 lacs outstanding then the interest would charge on whole 8 lacs(Pleas correct me If I am wrong).Any suggestions on how to proceed would be greatly appreciated.

Let us extract the key details from the query:

the group member can pay the EMI of the 8 lakh loan over 6-9 months
the purpose of the credit card charge is to buy a house
the charge did not get converted at a low-rate EMI but is being charged at the full 36% or similar interest rate

Credit Card loan EMI per lakh

We can refer to this post to understand how interest charges on a credit card balance work: Don’t Get Caught in the Credit Card Debt Trap: Unmasking Interest Calculation & GST Charges

Payment option 1: Personal loan

Personal loan EMI per lakh

A personal loan say at a 12% interest rate will cost ₹23,006/lakh for 6 months. For this case, for an 8 lakh balance, the EMI will be:

₹1,38,039 per month for 6 months
₹93,392 per month for 9 months
₹71,079 per month for 12 months etc.

The total interest paid for a ₹8 lakh loan will be

₹28,232 for 6 months
₹40,531 for 9 months
₹52,948 for 12 months etc

You can refer to the entire article on EMI per lakh for all loans here: EMI Calculator: know your EMI per lakh to easily know how much total EMI you have to pay.

A loan from friends or family might also work depending on how you can negotiate and amount and the interest rate. The same logic can be applied to a gold loan.

Did you know that we have a private Facebook group which you can join for free and ask your own questions? Please click the button below to join.

Payment option 2: Selling shares or mutual funds

A simple option is to sell off any investments like shares or mutual funds to pay off the credit card balance. If there are any long-term capital gains and given that this is for a house purchase, there is a potential of saving capital gains tax under Section 54F: Sec 54F: a hack that can save lakhs in taxes when you buy a house. Even if there are no or limited long-term capital gains, the interest saved will likely be higher.

Then you can use the same EMI amount as the personal loan (or credit card EMI) to replenish the mutual fund portfolio. This plan works very well as explained here: Should you take a personal loan to invest in the stock market or mutual funds?.

Payment option 3: Balance transfer to another credit card

If there are other cards available which allow an incoming balance at either 0% for 30-60 days or a low rate like 1.8% for 6 months. Card generally allow usage of up to 80% of their credit limit for a balance transfer.

Payment option 4: a top-up home loan

If the home being purchased already has a home loan, then a top-up loan from the same bank as the home loan is a cheaper way to pay off the credit card loan:

interest rates are the same as the home loan which is much lower than that of credit cards
the bank giving the home loan does not have any restriction on the usage of the funds from the top-up loan

A consideration for processing times

Each of these options will have different processing times. A general thumb-rule for processing time could be:

Payment option 1: Personal loan: up to a week
Payment option 2: Selling shares or mutual funds: 2-3 days
Payment option 3: Balance transfer to another credit card: immediate
Payment option 4: a top-up home loan: up to 2 weeks

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