The Reality of Credit Cards in India: Convenience or a Debt Trap?
Many people believe that as long as they pay the minimum amount due on their credit card bill, they are safe and won’t be charged interest. But the reality is very different. Paying only the minimum amount due can silently push users into paying up to 48% annual interest.
You may have used No Cost EMI, earned reward points, or felt confident that you are managing your credit card well. But the real question is simple: who is actually benefiting from this system—the customer or the credit card companies?
Growth of the Credit Card Industry in India
The credit card industry has grown rapidly over the last decade. In 2020, the industry size was around 100 billion dollars. By 2024, it crossed 221 billion dollars, growing at nearly 21% CAGR.
In July 2025 alone, credit card transactions in India crossed one lakh crore rupees. This massive growth clearly shows how deeply credit cards are integrated into daily spending habits.
Where Do Credit Card Companies Make Money?
Many people assume that if they pay their bill on time, credit card companies earn nothing. This assumption is wrong.
The majority of income for credit card companies comes from interest income. Out of 100 credit card users, only a few pay the full bill every month. Around 30–35% are known as revolvers—people who pay only the minimum amount due and carry forward the balance.
In addition to interest, credit card companies earn through joining fees, annual fees, and merchant charges collected whenever a card is swiped.
The Minimum Amount Due Trap
Jhansi, do you use credit cards?
Yes, I use them regularly.
How much was your credit card bill last month?
It was 60,000 rupees.
How will you pay it?
I will pay the minimum amount due.
This is where most people fall into trouble. Paying the minimum amount due avoids late fees, but interest is charged on the remaining balance.
For example, if you spend one lakh rupees, the minimum amount due may be around 2,000 rupees. After paying this, interest is charged on the remaining 98,000 rupees. If this continues month after month, interest is charged not only on the principal but also on previous interest.
Credit card interest rates in India can go as high as 40% to 48%. Paying such high interest is not a small issue and often leads to long-term debt.
No Cost EMI: The Hidden Reality
No Cost EMI appears attractive, but it is not truly free. Let us understand this with an example.
Arun, you recently bought an iPhone. How did you buy it?
I bought it on No Cost EMI during a sale.
Many people believe that No Cost EMI means zero interest. In reality, the interest is paid by the seller to the credit card company, and the seller recovers this cost by removing genuine discounts and encouraging additional purchases.
If even one EMI payment is missed, interest immediately applies at full credit card rates. Over time, repeated use of EMIs increases debt significantly.
Today, nearly 70% of iPhones in India are purchased on EMI, and around 97% of credit card users have opted for EMI at some point.
The Reward Points Illusion
Reward points create the illusion of free benefits. For example, to earn reward points worth 13,000 rupees, one may need to spend close to 10 lakh rupees.
This encourages unnecessary spending. Many users increase expenses only to earn points, which eventually leads to higher bills and EMI conversions.
If you already have the money and pay the full bill, reward points may be a small bonus. But spending extra only for points often results in debt.
Credit Card Cash Withdrawal: A Costly Mistake
Withdrawing cash using a credit card attracts immediate interest, often up to 40%, with no grace period. This is one of the worst ways to use a credit card and should be avoided completely.
Credit Utilization and Credit Score
If your credit card limit is one lakh rupees and you regularly use 90,000 rupees, it signals financial stress and negatively impacts your credit score.
It is recommended to use no more than 30% of your total credit limit to maintain a healthy credit score.
The Right Way to Use a Credit Card
A credit card should be used only when you already have the money to pay the bill in full. Tracking expenses, avoiding unnecessary EMIs, and not chasing reward points are essential habits.
A credit card is a financial tool, not extra income. Used correctly, it offers convenience. Used carelessly, it leads to long-term financial stress.
Final Reality Check
Credit cards are not bad by nature, but they are designed to profit from impulsive spending and delayed payments. Understanding how they work is essential. Otherwise, the user unknowingly becomes the product.
