Credit Card Moratorium - The Complete Guide

Posted by  Fintra Editor , September 24, 2020

Credit Card Moratorium - The Complete Guide

Worried how you’re going to pay credit card dues when the whole economy faces turmoil? Don’t panic- there’s a solution! The Reserve Bank of India undertakes some precautionary measures to help and ease its citizen’s worries during financial crunches occurring at large. Briefly describing RBI, its purpose is to monitor the issuing of Banknotes as well as keeping the reserves to secure monetary stability in India. It administers the credit and currency system to its advantage and designs a modern monetary policy framework to meet the challenges of an increasingly complex economy. RBI is also in charge of maintaining price stability while keeping in mind the objective of growth.

Wondering what is a credit card moratorium and how it can benefit you? Is it a wise thing to opt for? Fintra here will satisfy all your questions and doubts by talking about the following topics:

  1. What is a Credit Card Moratorium?
  2. Should you opt for the moratorium on credit card dues?
  3. Fintra’s view on Moratorium

                    Credit Card Moratorium

What is a Credit Card Moratorium?

It’s a natural process where a nation’s economy goes through its highs and lows due to various factors. Speaking about the lows, everyone experiences financial crunches, for example, recently we faced this scenario due to the Covid-19 pandemic. During such crucial times, pays were reduced by nearly 50%, many lost jobs, and businesses faced losses. In these times how can anyone pay for their bills or credit card dues? The government steps in and acts as a healer. When such scenarios occur, the Reserve Bank of India (RBI) takes certain steps to ease the citizens’ worries of paying dues on loans/EMIs and credit cards. They pass regulations and instruct banks and other financial institutions to draft and offer moratorium facilities. Moratorium acts as a cushion for the credit cardholders by providing relief to those facing difficulties to service their payments due to disruptions in cash flows and income. When a moratorium is offered, the credit card payments are deferred by a certain number of months as stated by the financial institutions.

 

                                Economy Growth

 

Should you opt for the moratorium on credit card dues?

Credit cards are indeed one sophisticated payment tool and they can be rewarding when used in a responsible manner. However, careless usage will certainly disturb your finances. Opting for a credit card moratorium will only provide temporary relief, it won’t be a lasting solution. You might fall into the debt trap if you don’t pay the entire bills at the end of the moratorium period. Moratorium just deferments your credit card dues, it isn’t a waiver for your repayment obligation. Interest will keep accruing, and you will have to pay the entire outstanding amount (inclusive of the interest charges) on the due date immediately after the moratorium period completes.

It depends on the bank’s credit policies and risk perception, on how they provide the moratorium, and it will differ from one bank to another, and from one credit cardholder to another. Hence, it’ll be a wise thing to re-emphasize while you discuss it with them on the same to get complete clarity.

Coming to the main question of whether you should opt for the moratorium on credit card dues, Fintra urges you to think twice before applying for it. When availing of the moratorium support, it will only lead to obtaining interest charges of 3-4% per month on outstanding dues. Moreover, if the matter is not very critical, first try other options before taking this repayment deferment. Use your emergency funds, withdraw from your EPF account, and/or pause or liquidate some non-essential investments to raise the required funds for the repayment of the card dues. If the option of borrowing some amounts from your family and friends is available, do utilize it before opting for the moratorium. However, do keep a backup plan ready to repay the outstanding dues entirely as soon as the moratorium period ends. If there are any more further delays, it will lead to additional interest charges and late payment fees. This will ultimately ruin your credit profile, and place you in a critical debt situation.

                          Debt trap                               

Fintra’s view on Moratorium

RBI intervenes and orders to follow their regulations for a moratorium with financial institutions for a while, later it may take a back step and leave it to the discretion of these institutions to decide on the process of how they wish to offer the moratorium to their customers.

The banks and card issuers are left free to adopt various methods they think are more appropriate. Some might ask their customers to reach out to them if they desired to get a moratorium - this method is called an opt-in method. Moreover, some other financial institutions might offer the moratorium by default, and then the customer is given the option of opting out if they don’t want it. 

One vital fact to remember is that moratoriums have certain negative implications, too. During the moratorium period, the interest continues to accumulate on the outstanding credit card payments of the individual. The moratorium only provides a ‘grace period’, it shouldn’t be perceived as a waiver of the credit card payments.

Fintra warns you that opting for a credit card moratorium will lead the individual towards the debt trap, hence, we advise you to clear the dues as soon as possible. Decrease the debt burden if you’ve sufficient cash flow and liquidity. One another solution to lessen the burden a bit is to convert the outstanding credit card bills to EMIs. Although the interest rates on EMIs depends on the credit profile of the cardholder, it will be somewhat lower than the finance charges of the credit card. EMI tenures can range between six months to five years, thereby enabling the cardholders to select their desired tenure as per their expected liquidity and cash flows. Fintra strongly recommends having caution while applying over the credit card moratorium and it is recommended, better avoid credit card moratorium to avoid future consequences.

        Pay Credit Card Outstanding Post Moratorium

Conclusion

In conclusion, we suggest making as many attempts as you can in clearing all the credit card dues on time without relying on the moratorium option. It will be very valuable to have a fully functional credit card with unhindered access to its full credit limit during uncertain times. In tough times, a fully functional credit card will act as a convenient payment tool and a back-up plan, which facilities like easy EMIs by enabling you to convert an essential purchase into tiny installments. Credit cardholders with a good payment track record will get to avail of credit card-linked pre-approved loans that will provide an additional and immediate line of credit requiring no paperwork. This facility could act as a boom in any financial difficulties.

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