Did you know that you can pay off your loans using a Credit Card? Here’s how.
Can you imagine a life without credit cards? It would mean no online shopping, carrying wads of cash on your vacations and ensuring that you always have money in your wallet. Millennials will find it hard to imagine such a life.
Credit cards have become a must-have for this generation which has become used to the concept of buy-now-pay-later. But here’s some amusing trivia: you can use a credit card if you have debts to pay off.
Using your credit card to clear your dues is an option that you can explore when you are scrambling to keep up with your loan repayments. In this article, we have chalked out details about this for you to make an informed decision.
How Can You Pay Off Loans With Your Credit Cards?
If you have a money transfer credit card, you are in luck. These types of cards are designed to transfer money from your credit card to your current account to repay your debt.
Contrary to other credit cards, money transfer cards charge you a lower interest for this type of transaction. You could be in a tough situation where you need urgent cash to pay off your debt but do not have a money transfer credit card.
In such a scenario, it is advisable to check with the bank about the charges. You can go ahead with it if your card is in the introductory period and charges 0% interest or a nominal amount for long-term credit.
Once the funds reach your account, you can choose to repay your loan in full if there are no early repayment charges. Or else, you can proceed with monthly instalments.
What Is A Money Transfer Credit Card?
A money transfer credit card is a special type of card that allows you to take credit and transfer it into your current account.
Most of these cards offer a 0% interest for a fixed period of time. During that time, you will have to pay a monthly balance as stipulated by the bank.
Although the interest may be nominal in other cases, the lender may still levy a small fee for each transfer. You may want to check this information with your bank to avoid any last-minute surprises.
How Do You Select The Best Money Transfer Credit Card?
When you are shopping for a money transfer credit card, there are a few things that you may want to keep in your mind.
These cards offer an interest-free period during which you can transfer the amount to your bank account. While the interest will be 0%, there will be a transfer fee associated with the transaction.
Generally, you will find a trend that the longer this duration is, the higher will be your transfer fee. If you choose a shorter duration, you will have to repay more monthly payments to clear your credit card debt.
It is advisable to plan your finances a bit before applying for this card to reduce your overall liability.
How Can You Transfer Money From Your Credit Card To Bank Account?
Well, there are multiple ways in which you can do this. The easiest solution is to ask your bank to transfer cash to your current account on your money transfer credit card.
A few banks allow this facility online and enable the customer to initiate the process through net banking.
The second option is to ask your bank for a cash withdrawal and deposit it into your account. The final option is to withdraw the money at an ATM. However, both of these alternatives may attract high charges.
When you withdraw money from an ATM via your credit card, the bank will start charging the interest almost immediately. You will not get the benefit of an interest-free period. Some banks also charge a small fee on cash withdrawals.
Is There A Risk Of Using A Money Transfer Credit Card For Paying Off Debt?
It is inadvisable to use money transfer credit cards for anything else other than repaying your loan. The interest rate on your shopping and cash withdrawals can be too high. Moreover, using it for these purposes can reduce your credit score.
Another point to remember is that the facility of 0% interest may end if you fail to pay your monthly balance. There will also be a late payment fee if you miss the payment date, even by one day.
Thus, it is advisable to track your last dates and always ensure that you clear your bill before the last date. Consider getting a direct debit from your bank account or set reminders so that you never miss the payments.
While the card will help you keep up with your monthly payments and household expenses, you will get the time to arrange funds to clear your debt.
How Much Money Can You Transfer?
Like any other credit card, your lender will also set a credit limit on your money transfer card. The amount that you can transfer on 0% interest will usually depend upon your credit history and be a fixed percentage of your credit limit.
A favorable credit score can get you a higher credit limit. To build a good credit score, ensure that you repay all your installments and credit card bills regularly and consistently. With a favorable rating, you can negotiate for a higher credit limit and lesser charges.
What Happens When The 0% Interest-Free Period Runs Out?
As your interest-free period ends, the lender will charge you interest at higher rates. To avoid this, you can apply for a new money transfer credit card. It will provide you with more time to arrange funds for clearing this loan.
However, you cannot only bank on credit cards for repaying your loan. Frequent credit card applications can show negatively on your credit history.
These are tough times – and if you are struggling to repay your loans, you can use your credit cards to arrange funds. With this information in hand, you can buy yourself time to arrange funds to clear your debt.