'Revolving credit without full repayment causes interest to outpace repayment capacity, and leads to financial distress.'
Credit card delinquencies in the 91 to 360 days overdue category rose 44.3 per cent year-on-year -- from Rs 23,475.6 crore in March 2024 to Rs 33,886.5 crore in March 2025, according to a report by CRIF High Mark.
These figures indicate growing credit card indebtedness and the need for customers to exercise greater caution while using them.
Minimum payment mindset
A major reason for rising credit card non-performing assets is the minimum payment mindset, wherein borrowers pay only 2 to 5 per cent of the amount outstanding.
"According to a report by the Reserve Bank of India, only 40 per cent of Indian credit card holders repay their full outstanding amount every month," says Inderbir Singh Jolly, CEO, PL Wealth Management.
Lenders charge interest rates of 36 to 45 per cent on revolving credit.
"Revolving credit without full repayment causes interest to outpace repayment capacity, and leads to financial distress," says Rishabh Goel, co-founder & CEO, Credgenics.
Lifestyle creep is another factor: As incomes increase, so do credit limits and spending.
Trying to keep up with peers also plays a part.
"According to a survey by YouGov, 67 per cent of urban Indians admit to social media influencing their spending decisions," says Jolly.
Many users also fall into psychological traps.
Cards create a false sense of affluence among users. Many forget it is borrowed money that must be paid later.
With cash, people feel the pinch when they pay.
"You are left with less cash, so you feel you have less money left to spend. You don't feel the same when you use a credit card," says Anand Damani, a behavioural scientist.
Card users often fall prey to optimism bias.
"They think they will manage to pay when the due date comes," says Damani.
Many don't factor in the possibility of job layoffs, illnesses, and other unforeseen events.
Signs of a debt trap
Certain kinds of behaviour should serve as a warning sign to borrowers that they may be headed for a debt trap.
"Consistently paying only the minimum amount due, missing due dates, or frequently making late payments are red flags. Using credit cards for non-discretionary expenses signals over-dependence," says Goel.
A credit utilisation ratio (CUR, or credit card outstanding divided by total card limit) exceeding 40 per cent also indicates over-reliance.
Using one card or loan to pay off another also shows that the user is under financial strain.
"The total of your EMIs should not exceed 50 per cent of your income," says Abhishek Kumar, Securities and Exchange Board of India-registered investment adviser and founder, SahajMoney.com.
Avoid revolving credit
Certain best practices can enable credit card customers to use them in a responsible manner.
Arun Ramamurthy, author of the book Unlock the Power of Your Credit Score, suggests that users should aim to pay the total outstanding amount by the due date to avoid exorbitant interest rates.
Users should also maintain a moderate CUR. "Don't use credit beyond 30 per cent of available limit," says Kumar.
Repayment procedures should be automated. "Set up auto-debit for at least the minimum due to avoid missed payments and late fees," says Ramamurthy.
Checking one's credit report twice annually is crucial to discover missed payments.
Card customers should not have too many cards in their wallets. Most experts suggest limiting the number to three.
"One could be for regular use with good cashback or rewards, the second could be for emergencies or high-limit transactions, and the third could be a co-branded card based on lifestyle (for example, fuel or travel)," says Ramamurthy.
Having multiple cards can improve CUR and the credit score if managed well.
Beyond three, it may become difficult to track bills and due dates. The risk of over-leverage also increases.
If on the verge of default
Card users who find it difficult to repay their dues on time should pay at least the minimum amount.
"This will ensure that your credit score is not impacted. You will also avoid paying a late fee.
"However, interest on the due amount will keep accumulating," says Radhika Binani, chief product officer, Paisabazaar.
Next, convert the outstanding on your credit card into EMIs.
"This will lower the interest charged to 14 to 24 per cent and you will avoid a hit to your credit score due to missed payments," says Ramamurthy.
Borrowers also get more time to pay their dues.
Kumar cautions that conversion to EMI requires payment of processing fees and also reduces the credit limit available on the card.
Avoid settling your dues. Settlement means the customer pays less than he owes and the rest gets written off.
"The bureau marks this account as 'settled' in the credit report. This can hurt your credit score significantly.
"Future applications for loans or credit cards may get rejected or may be approved with higher interest rates and stricter terms," says Binani.
Those with dues on multiple cards may consider consolidating them into one loan.
"A debt consolidation loan may come with more favourable repayment terms such as lower interest rates and affordable EMIs.
"It simplifies repayment as there are fewer payments to track and repay," says Adhil Shetty, CEO, BankBazaar.com.
He adds that this is a good alternative so long as you don't need to borrow again before the consolidated loan is closed.
How to get out of a debt trap
Avalanche method: This involves listing all debts and prioritising repayment of the one with the highest interest rate first, while making minimum payments on the others. This helps you pay the least amount of interest
Snowball method: Suitable for borrowers who need motivation. Involves repaying the smallest loan first to build a sense of achievement before moving on to larger debts
If neither work, borrowers struggling to manage high debts should consider consulting debt counsellors, who can help with budgeting, repayment planning, and negotiating with lenders
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Feature Presentation: Ashish Narsale/Rediff