The Diwali festive season fills the air with joy and excitement, but for millions of Indian consumers, it also means loosening their purse strings.
This trend is clearly reflected in the data published by the Reserve Bank of India (RBI) during the peak Diwali festive season of October 2024; credit card transactions alone surged over 14% in a month to ₹2.02 lakh crore, driven by 43.3 crore transactions in that month. The numbers clearly show how credit cards shift from everyday payment tools to spending machines during the festive season.
The core problem isn’t the items we buy, but how we mentally process the purchase. From a small gift hamper to a major appliance, accessories, and gadgets, many festive purchases are financed through some form of credit, be it a personal loan, buy now pay later (BNPL), or the most convenient, credit card EMIs.
A phone priced at ₹1,00,000 is no longer seen as a one-time six-figure investment. With flexible repayment options, it is often viewed as a minimal ₹10,000 EMI for 10 months. This psychological illusion makes expensive items feel cheap and affordable, leading to overspending.
When the next salary arrives, a major portion is diverted to debt repayment, leading to a liquidity crunch and a debt spiral. The cost of this debt is high. Interest rates on credit card EMIs typically range from 12% to 24% and if you miss a due date, the penalty interest can soar up to 40% APR (Annual Percentage Rate).
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Five mindful practices to prevent the credit card debt trap
1. Plan your purchases and budget: Plan your large expenses in advance and allocate a fixed, realistic amount you can afford to pay back in full. Do not let the discounts drive your purchases.
2. Maintain low utilisation: Avoid using more than 35% of your total available credit card limit. Excessive utilisation shows poor cash flow management and will put you in a debt spiral. Put a spending cap on the credit card on the mobile banking app if you aren’t able to track expenses.
3. Avoid the minimum payment trap: Never pay only the minimum 5% due. This only covers a fraction of the outstanding balance, and the high interest keeps compounding. Always pay the full outstanding bill.
4. Prioritise timely payments: Set up an autopay mandate for the full statement amount at least 3 days before the due date to avoid any potential processing delays or unwanted interest charges.
5. Control your bad debt EMI-to-income ratio: When converting big purchases into EMIs, be mindful of your total monthly debt obligations. Ensure your total bad debt EMI-to-Income does not exceed 5% of your monthly disposable income. This helps maintain liquidity.
This Diwali, let joy and mindful credit card practices go hand in hand. The urge to splurge on yourself and your loved ones is natural. But no celebration is worth months of EMI burden.
Before every festive purchase, pause and reflect on whether this will bring lasting joy or months of stress. Use credit cards smartly by paying in full and staying within limits. Credit cards can yield substantial savings, often more than 10%.
Lack of discipline and an inability to correctly assess your spending behaviour are the only things standing between you and a big credit card debt.
Dev Patel is a quantitative research analyst at 1 Finance. Views are personal
