Credit Card Usage in India: How to Avoid the Credit Card Debt Trap

India’s credit card market is witnessing exceptional growth, fuelled by rising consumer confidence and digital adoption. While spending surges, mounting defaults and financial risks emphasises the need for smarter, disciplined borrowing alternatives.

India’s statistics on credit card boom: rising transactions, growing usage, and the hidden risks

March 2024 noted a value of ₹18.31 lakh crore in credit card transactions, which climbed to ₹21.09 lakh crore in March 2025—reflecting a growth of nearly 15%. In May 2025 alone, spending through credit cards recorded an amount of ₹1.89 lakh crore, a sharp rise compared to ₹64,737 crore in January 2021. This surge highlights both the country’s post-pandemic recovery and the improving confidence of consumers. The market has also seen a significant expansion in card circulation. RBI data shows that as of May 2025, there were 11.11 crore active cards, up from 10.33 crore a year earlier and 6.10 crore in January 2021.

These statistics highlight the increasing dependence on credit cards for both daily and festive spending, fuelled by attractive rewards, cashback incentives, and no-cost EMI options. However, this ease of use comes with drawbacks. Beneath the impressive figures lies a concerning trend of escalating credit card delinquencies and outstanding balances, leading to a credit card debt trap and eventually financial pressure for many users. For younger individuals, the dangers are particularly acute as their spending often exceeds their income. Increasing awareness of credit scores is evident among young people, yet many millennials, enticed by buy now, pay later options and installment payments for online purchases, are contributing to rising credit card defaults and outstanding debts.

Credit Card Portfolio at Risk (PAR) in India: three-year trend analysis and projections

The latest CRIF High Mark data indicates a sharp rise in the Credit Card Portfolio at Risk (PAR) across delinquency buckets over the last three years.

• In March 2023, credit card PAR in the 91–180 days overdue category stood at ₹15,717.5 crore, representing 6.6% of outstanding dues. The 181–360 days bucket was relatively lower, at ₹1,608.6 crore or 0.7%.

• By March 2024, both categories saw notable increases. PAR (91–180 days) rose to ₹20,872.6 crore (6.9%), while PAR (181–360 days) expanded to ₹2,603.0 crore (0.9%).

• The stress accelerated further in March 2025, with PAR (91–180 days) at ₹29,983.6 crore, accounting for 8.2%, and PAR (181–360 days) reaching ₹3,902.9 crore (1.1%).

• This trend highlights a steady deterioration in repayment discipline within the credit card segment, with delinquency levels rising both in absolute terms and as a percentage of portfolio. The increasing slippages into the 91–180 day category suggest mounting short-term stress, while the climb in the 181–360 day bucket reflects higher risks of accounts slipping into long-term default.

Source: Indian Express, CRIF High Mark

Consequences for defaulters

• Adverse Effect on Credit Score

Your credit score reflects how trustworthy you are as a borrower. It is determined by your credit history, which includes your credit card payment habits. Failing to make your credit card payment can adversely affect your credit score. This can create challenges in obtaining loans or credit cards later on. A poor credit score may also lead to increased interest rates and reduced credit limits.

• Agencies for Debt Collection

The bank may use a debt collection agency to recover the money if you fail to make your credit card payment on time. You can receive aggressive calls and mailings from debt collection agencies. They may even visit you at your home or place of business. This may result in damage to reputation.

• Penalties for Late Payments and Interest Charges

If you do not settle your credit card payment by the specified due date, the bank will impose a late payment fee. Furthermore, the bank will apply interest to the remaining balance. The monthly interest rate may vary between 2.5% and 3.5%, which can accumulate to a considerable sum over a period.

• Legal Action

If you do not settle your credit card payment for a prolonged period, your bank could initiate legal proceedings against you. The bank is entitled to pursue a civil lawsuit to recover the unpaid balance. In severe situations, the bank might also pursue criminal charges for fraud. This can lead to legal costs and damage to your reputation.

• A lower credit limit

People perceive you as a high-risk borrower when you miss a credit card payment. They might restrict their access to credit in order to lower their personal risk. Your other credit cards' credit limits may drop as a result. Your credit use rate may rise as a result, which could lower your credit score and lead to more issues.

How to avoid falling into a credit card debt trap

• Pay on time, in full – Always clear the total outstanding amount by the due date to avoid interest and penalties.

• Spend within limits – Keep expenses aligned with your income and maintain low credit utilization (ideally under 30%).

• Use auto-pay or reminders – Set up auto-debit or alerts to ensure you never miss a payment.

• Avoid multiple cards – Limit the number of credit cards to manage debt easily and stay in control.

• Spend smartly – Use credit cards for planned purchases, emergencies, and rewards, not impulsive shopping.

What are the alternatives to credit cards

Personal loans (PLs) and overdraft facilities (ODs) are viable alternatives to credit cards, offering structured and flexible borrowing options. They provide greater financial stability by minimizing reliance on high-cost revolving credit, encouraging responsible usage, reducing impulsive spending, and aligning repayment with actual capacity for long-term financial well-being. The table below highlights key differences to help choose the most efficient credit instrument for their needs.

Feature	Credit Card	Personal Loan	Overdraft Facility
Interest Rate	30%–42% p.a. (revolving credit)	11%–18% p.a. (fixed)	10%–15% p.a. (on utilized amount)
Repayment Structure	Flexible, but risk of rollover debt	Fixed EMIs over a set tenure	Flexible, repay as funds are available
Best Use Case	Short-term spends, rewards, offers	Large planned expenses (e.g., medical, education, debt consolidation)	Managing short-term cash flow or working capital
Cost Efficiency	High if dues are not cleared monthly	Lower due to fixed rates and tenure	Cost-effective, interest charged only on usage
Risk Level	High risk of debt trap if misused	Moderate, with predictable repayment	Low-to-moderate, as usage is controlled
Discipline Factor	Requires strong repayment discipline	Encourages repayment planning	Flexible but needs careful monitoring

What changes should you, as a credit card user, implement

The best action anyone can take is be informed about the options, map the needs, and choose the best alternative.

Let us help you with the possibilities. Contact us for a consultation absolutely free of cost. Tell us your needs and we’ll tell you the payment mode where you can save the most. Do not compromise on your lifestyle or dreams. Just achieve them in a smarter way!