Credit card usage in India has risen to new heights. In the season of Diwali 2024, Indians spend ₹2 trillion on 433 million items, and the monthly spending is rising to him ₹18,878. This marks a significant increase from ₹16,734 recorded in the month of Diwali 2023. These statistics show the growing reliance on credit cards for everyday and festive purchases, driven by attractive rewards, cashback offers, and inexpensive EMI schemes. However, this convenience comes at a cost. Behind the record-breaking numbers is a worrying trend of rising credit card fraud and unpaid balances, a financial hardship for many users. For small users, the risks are even more apparent as spending often exceeds income. Let’s take a look at this trend and examine what new credit card users should keep in mind going forward.
The Rise of Criminals
Credit card fraud is becoming a major concern in India. Data from the CRIF High Mark shows that delinquencies in the 91-180 days past (DPD) category rose to 7.6% in June 2024, up from 6.5% in June 2023... Long-term defaults are also on the rise, with delinquency rates in the 360+ day category rising from 1.3% to 1.7% over the same period. Apart from this, the credit card market continues to grow, with the number of active cards increasing by over 13% to 10.6 crore by October 2024. This growth is fueled by the popularity of rewards programs, special benefits, and the sheer convenience of cashless shopping. . However, on the flipside, buyers should also be aware of the 36% interest rate because unpaid fees can create a snowball effect of debt that can leave them struggling financially. If more consumers rely on credit cards, the pattern of rising balances and delinquency will eventually undermine the stability of our banks.
Dangerous Extremism Among Youth
Younger credit card users are increasingly using credit for non-essential purchases, often relying on EMIs to fund their finances. Lifestyle choices, such as frequent dining out, gadget upgrades, and luxury travel, are now often funded by credit cards. The convenience of converting large purchases into EMIs often offsets the actual cost of these purchases. While no-cost EMIs are often offered on electronic purchases, some financing schemes will attract interest. Many users fail to account for such costs, leading to a financial situation where payments begin to pile up with other obligations. Revolving credit, where users pay the minimum amount due, also compounds the problem. It leaves a balance that accrues huge interest every month, turning a short-term loan into a long-term liability.
Why Paying on Time and Discipline of Debts is Important
Paying your credit card payments on time is essential to maintaining financial health. Not only does it prevent interest from piling up, but it also protects your credit score. A good credit score opens the door to favorable loan terms and higher credit limits in the future. Conversely, late payments and defaults can have a negative impact on your school, making it difficult to access credit when you need it most. To avoid financial pitfalls, use a simple rule of thumb: limit your EMI obligations to 30-40% of your monthly income. For example, if your monthly income is the same ₹50,000, your total EMI obligations—including credit card payments—should not exceed ₹20,000. This ensures that you have enough room to cover important expenses and unexpected emergencies. In addition, monitoring your credit score regularly can help you stay on top of your financial obligations and avoid surprises.
How to Use Credit Cards Responsibly
Credit cards, when managed wisely, can be valuable tools for managing finances and building a strong credit history. Start by choosing a credit card that fits the way you spend money, whether it’s for travel, dining, or everyday purchases. Always aim to pay off the balance in full within the interest-free period to avoid interest charges. Avoid using credit cards to finance discretionary or luxury purchases unless you are sure you can pay the amount on time. For new users, setting clear spending limits is important. Limit your credit card usage to essential expenses and resist the temptation to overspend on non-essentials. Additionally, regularly reviewing your credit card statements can help you identify unnecessary charges and make changes. Finally, use free tools to track your score and usage patterns.
Credit cards have revolutionized the way Indians spend money, offering unparalleled convenience and benefits. However, the increased use has also revealed a lack of financial discipline among many users. Rising crime, delinquency, and revolving credit are signs of a troubling pattern that can escalate without timely intervention. The solution lies in balancing the benefits of credit cards with financial prudence. Pay your dues on time, limit your EMI burden, and avoid using debt as a means of financing a life beyond your means. By adopting these practices, young credit card users can enjoy the benefits of cashless transactions without falling into the trap of debt.
The author is Head of Communications, BankBazaar.com, and co-author of the best-selling money management guide, ‘The Bee, the Beetle and the Money Bug’.
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