Diwali credit card rush: Are we celebrating prosperity or borrowing it?

As we build up to Diwali, banks and financial institutions are witnessing a surge in the use of credit cards for meeting day-to-day expenses. Still, it is vital to carefully understand credit cards as borrowing tools so that efficient decisions can be made.

In August, credit card spending reached Rs. 1.91 trillion, a 13.7% year-over-year increase from Rs. 1.68 trillion in August 2023, although marginally lower than July's Rs. 1.93 trillion. On a broader annualised basis, spending reflected a 28% year-on-year growth, underscoring strong momentum in retail consumption.

Anand Agrawal, Co-founder & CPTO, Credgenics, highlights how festival excitement can easily blur financial discipline.

“The festive season often brings attractive discounts, cashbacks, and offers, which may lead to higher spending through credit cards. While these offers can be beneficial if used wisely, excessive unplanned spending and carrying forward unpaid balances may quickly lead to a debt trap. I advise consumers to create a clear festive budget, track their credit card usage, and prioritise full and timely repayment of bills... By practising disciplined spending and responsible repayment, consumers can enjoy the joy of festivities without compromising their long-term financial health.”

Smart spending checklist

To ensure that your credit card usage experience remains pleasant, you should:

1. Use credit cards responsibly and make planned purchases.
2. Don’t fall for the festive rush and hoard products or services you don’t need.
3. Make all credit card bill payments in full to avoid 40-45% annualised interest charges.
4. Don’t make EMI decisions based on emotions; only borrow for essentials, not luxury.
5. Always avoid cash withdrawals with credit cards, as they often come with steep transaction fees.

What are the risks of using credit cards?

If credit cards are not used in a responsible manner, they can make the entire experience of holding these credit instruments difficult. As credit cards come with risks such as high interest rates, the possibility of debt accumulation, negative implications for credit scores, hidden fees, the risk of financial fraud, the temptation to overspend, and the minimum payment trap.

In conclusion, as we build towards Diwali and the festive season peaks, the fine line between prosperity and over-borrowing narrows. Financial prudence, focused management of expenses, is what should be imbibed, not reckless usage of plastic.

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