I am considering surrendering my two credit cards to achieve greater financial freedom. The current situation is creating unnecessary pressure for me. Despite this, my parents strongly oppose the use of credit cards for even simple expenditures like booking tickets or dining out. I am conflicted about what course of action to take. Please share your advice.
Name withheld
Response by Raj Khosla, Founder & MD, MyMoneyMantra.com
Just ten years ago, credit cards were not very common in India, as they had strict eligibility requirements. However, the number of credit cards issued in the country has seen a significant rise from two crore in 2011 to 10 crore in 2024. According to a recent report by PwC, the credit card market in India is projected to reach 200 million cards with a Compound Annual Growth Rate (CAGR) of 15%. The report highlights that the industry has undergone substantial expansion, doubling the number of credit cards issued in the past five years.
This growth trajectory is expected to continue, with the market likely to maintain its impressive growth in the years ahead. The report predicts that the credit card market in India will double its number of cards by the fiscal year 2028-29, reaching 200 million cards. With a 100% increase in issued cards over the last five years, the industry is poised to replicate this growth within the next five years.
If used wisely, credit cards are one of the best financial tools that allows individuals to spend a preset quantum of interest-free credit. Unwarranted usage and spending beyond your net earnings may land you in trouble as nobody with or without a credit card can leverage beyond a tipping point.
You should be able to repay the entire amount spent before the due date to make the most effective use of a credit card. At the end of the day, a credit card is nothing but a line of credit bundled together with deals, rewards and offers into a plastic/metal.
How missing payments can damage finances?
Disobeying credit card repayments can be truly damaging as deferred dues are accrued with an annual percentage rate (APR) of about 40%. Over and above this, a penalty is charged if the credit card user missed to repay even the minimum amount due. The APR rates are generally one of the highest charges from the customers.
A monthly interest of 3%, along with the penalty and late payment charges topped with government taxes at a rate of 18% can potentially deplete the funds/savings at disposal.
How to reduce/manage credit card outstanding?
Individuals who are finding it hard to manage their credit card usage should immediately check on their spending habits and patterns, the primary areas of overspending.
They can choose to consolidate the outstanding of multiple cards by taking a personal loan or a loan against securities/gold to clear the dues promptly and repay the personal loan through affordable EMIs. During the course of repayment by debt consolidation, credit card usage should be temporarily halted to avoid additional burden on the pocket.
(Views expressed by the expert are his/her own. E-mail us your investment queries at [email protected]. We will get your queries answered by our panel of experts.)
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