Linking your credit card with UPI: Convenience or a debt trap?

Experts call for responsible credit card usage as it involves borrowed money and associated interest charges if not paid within the billing cycle

Using Unified Payments Interface (UPI) to make credit card payments is convenient, accessible and helps strengthen financial inclusion. But is linking your credit card to UPI a good idea? Let’s explore whether you should link your credit card to UPI.

 

Understanding UPI-credit card linking

 

UPI transactions were limited to bank accounts and debit cards till the RBI allowed linking RuPay credit cards to UPI in 2022. Most

banks allow you to link their RuPay credit cards. Support for international card networks like Visa and Mastercard is currently limited.

 

“Linking credit cards to UPI offers unmatched convenience and makes UPI spends rewarding as well. Since the penetration of merchant UPI QRs is an order of magnitude higher than that of PoS (Point of Sale) machines, credit card acceptance will skyrocket, boosting consumption directly. The supply side unlock fuels the demand for credit cards that work on UPI, as we are seeing with the increased demand for Rupay-UPI credit cards,” said Prashant Kumar, chief executive officer at Kredit.pe.  "Users must regularly track their outstanding balances and ensure timely bill payments, as defaults can have a detrimental impact on their CIBIL score in the long run," said Tushar Aggarwal, founder & chief executive officer, Stashfin.

 

Disadvantages of linking credit cards to UPI

 

Risk of overspending: The ease of UPI payments can lead to impulsive purchases and unnecessary spending, potentially causing a surge in credit card debt.

 

Debt trap: Lucrative rewards programs may encourage users to spend more than they can afford, and failure to clear dues on time can lead to a cycle of debt.

 

High interest rates: Credit cards have high interest rates and delaying monthly payments could result in interest that’s higher than the actual transaction amount.

 

Impact on CIBIL score: Regularly exceeding a certain spending limit on credit cards can negatively impact CIBIL scores.

 

How to link your credit card with UPI

 

Download a UPI-enabled app: Install a compatible app such as BHIM, PhonePe, Google Pay, or Paytm.

 

Navigate to payment settings: Go to the 'add payment method' section and select 'credit card.'

 

Enter card details: Provide your credit card number, CVV, and expiration date.

 

Verify with OTP:  A one-time password (OTP) will be sent to your registered mobile number. Enter it to complete the verification process.

 

Create a UPI ID: Once linked, you may need to generate a UPI ID, which will be used for transactions.

 

The use of UPI for daily transactions has seen a significant rise. According to data from December 2024, UPI transactions hit a record high of 16.73 billion, marking an 8 per cent increase from November.