WHEN Raj Salonkar ran into a minor cash crisis, he resorted to borrowing from his credit card as an emergency measure. Over time, the bills piled up. And before he knew it, the outstandings raced to over Rs 1.2 lakh, which the 34-year-old techie struggled to pay off. Subsequently, he ‘defaulted’ on the minimum payments required to keep the card in vogue.

His bank took harsh measures to recover the money from him; he was asked to pay up around Rs 95,000 on his credit card in four installments. “It was a struggle for me, and bills just kept piling up,” says Salonkar. “But the bank should not have frozen my salary account. It was humiliating.”

Such sob stories are common among creditcard customers across the world. Individuals are often trapped under the avoidable burden of creditcard overdue payments, while banks strong-arm individuals into paying those dues.

Not only are the rates exorbitant, but the repayment process with banks can be daunting. Interest rates on credit cards (if you use the revolving facility, i.e., paying the minimum amount and rolling over the outstanding to the next billing cycle), range from 2.5 percent to 3.5 percent per month.

Extrapolate that to get the annual interest, and you get between 34.5 percent and 51.1 percent. At 3.5 percent monthly, an individual pays a whopping 51.1 per cent interest per year!

In comparison, home loans are priced at around 9.5 percent per annum, while auto usually ranges between 12 percent and 15 percent p.a. The more expensive personal loans offered to individuals without any collateral are usually between 12 percent and 20 percent p.a.