3-month Moratorium & Credit Cards: Why to still pay full dues if you can afford?

Note – Initial 3-month moratorium has been increased by 3 more months. Now moratorium is from March 2020 to August 2020, i.e. a total moratorium of 6 months. Read here about 3-month moratorium extension (June to August 2020).

A few days back, to the relief of many, RBI announced a 3-month Moratorium for borrowers. As the entire country is locked down to prevent the spread of coronavirus, you will agree that many people will now be impacted by this and struggle with their cashflows in the coming days.

So the RBI made a proactive move by asking lenders to provide a 3-month moratorium to loan borrowers to ease their financial burden in coming months.

I have already written about this 3 Month EMI Moratorium earlier. But there was some confusion initially whether credit card dues will be covered in this moratorium or not.

The RBI has now clarified that even the credit card dues will be are covered under the moratorium. The moratorium of three months is applicable for the card dues falling from 1st March 2020 to 31st May 2020.

But if you have any doubts (or if you want to believe some fake messages circulating on social media), then let me remind you that this moratorium is not a waiver of EMI payments (or credit card dues). This is just a deferral of dues for 3 months. And eventually you will have to pay what is due.

Since the moratorium only defers the payment, your dues will continue to accumulate interest during the moratorium period or until you clear the bills. And since credit card interest rates are around 25-45% per annum, you can understand how much interest it will accrue (get accumulated) in the 3-month moratorium if you don’t pay your dues.

If you take advantage of the moratorium, your credit score will not be impacted by non-payment of credit card dues for 3 months till the 31st May 2020. But please have no doubts. If you opt for the 3-month moratorium, the interest on credit card dues will continue to accrue during the 3-month period.

And that’s not all. If you know how credit card interest is calculated, you will realize that once you opt for and enter the moratorium period, you each subsequent purchase using your credit card will have no interest free period! The interest on each of the following transactions will be charged from the very first day itself. That’s how a credit card works (if you didn’t know that, then do read the link at the start of this paragraph). And that is the reason why its always better to pay your credit card bills in full on time. I have said this earlier too – why paying minimum due on credit cards is bad idea?

I am not too sure about the late payment fee that the credit card issuers charge if you delay payments. RBI hasn’t said anything about waiver of such charges. So we can assume that this might still be applicable for those opting for the moratorium. Or maybe as a gesture during this pandemic, the card companies might just waive it off for everyone. We still don’t know.

RBI has said that it is up to lenders to decide whom to give this option of the moratorium. So I am sure in a few days, all credit card issuers will come out with the guidelines about which card users are eligible for availing this moratorium.

But as is very clear by now, I strongly recommend that you continue paying your full card dues on/before the due dates if you can. Moratorium only defers and doesn’t waive off interest. If you opt for the moratorium, your dues will still accrue interest at a very high rate of 25-45% credit card rates. And you wouldn’t want that if you have the ability to pay the dues on time. Right?

I urge you to keep some money for emergencies (in a proper emergency fund). But if that’s in place and if you really can, then it is better to pay your credit card dues on time. And if you are unable to do so even after opting for the moratorium, then maybe you should check with the card issuer to convert your card dues to a personal loan (which has comparatively lower interest rate when it comes to personal loan vs credit cards).

Note – If interests, please do read the detailed RBI notification about the 3-month loan moratorium and its applicability on credit card dues among other term loans.