Paying only minimum due on your credit card? You could be in a debt trap

A credit card debt trap occurs when you are paying only the minimum due, or Using one card to pay off another. To avoid this, spend no more than 30 per cent of the card limit each month

Credit card delinquencies in the 91–360 days overdue category rose 44.3 per cent year-on-year, from Rs 23,475.6 crore in March 2024 to Rs 33,886.5 crore in March 2025, according to a report by CRIF High Mark. These figures underline the need for customers to be more cautious in their use of credit cards.

Reasons for rising NPAs

A major reason for rising credit card NPAs is the minimum payment mindset. “According to a report by the Reserve Bank of India (RBI), only 40 per cent of Indian credit card holders repay their full outstanding amount every month. This encourages prolonged debt cycles with high interest rates — often exceeding 36 per cent annually,” says Inderbir Singh Jolly, chief executive officer (CEO), PL Wealth Management.

 

Lifestyle creep is another factor: as incomes increase, so do credit limits and spending.

 

Social pressures also play a role. “According to a survey by YouGov, 67 per cent of urban Indians admit to social media influencing their spending decisions,” says Jolly.

 

Credit cards also lead to a few psychological traps. The cards give people a false sense of being wealthy. They forget it is borrowed money that must be paid later.

 

With cash, people feel the pinch when they pay. “You are left with lesser cash, so you actually feel you have less money left to spend. You don’t feel the same when you spend through a credit card, “ says Anand Damani, a behavioural scientist.

 

People  also fall prey to optimism bias. “They think they will manage to pay when the due date comes,” says Damani. Many don’t factor in job layoffs, illnesses, and other emergency expenditures that can arise.

Early signs of a debt trap

Certain kinds of behaviour should make borrowers cautious. “Consistently paying only the minimum amount due, missing due dates or frequently making late payments are major red flags. Heavy reliance on credit cards for everyday (non-discretionary) expenses signals over-dependence,” says Rishabh Goel, co-founder & CEO, Credgenics.

 

A high credit utilisation ratio or CUR (credit card balance divided by total card limit) also points towards risky credit behaviour.  “A CUR above 40 per cent indicates over-reliance on credit and poor financial management. It can lower credit scores, making it harder to secure loans or better interest rates in future,” says Goel.

 

Total EMI outgo as a percentage of income can also indicate whether a person is going overboard on debt. “The sum total of your EMIs should not exceed 50 per cent of your income,” says Abhishek Kumar, Sebi-registered investment adviser and founder, SahajMoney.com.

Best practices to follow

Certain best practices can enable credit card customers to use them in a responsible manner. Users should keep their CUR at a moderate level. “Don’t use credit beyond 30 per cent of available limit,” says Kumar.

 

Repayment procedures should be automated so as not to miss out on the due date. “Set up auto-debit for at least the minimum due to avoid missed payments and late fees,” says Arun Ramamurthy, author of book 'Unlock the Power of your Credit Score'. He also suggests checking your credit report periodically for any payment delays you may not have noticed.

 

Customers should also avoid having an excessive number of cards in their wallets. Most experts suggest limiting the number to three cards at the most. “ One could be for regular use with good cashback or rewards, the second could be for emergencies or high-limit transactions, and the third could be a co-branded card (e.g., fuel or travel) based on lifestyle,” says Ramamurthy.

 

Having multiple cards can improve CUR and boost the credit score if managed well. Beyond three, however, it may become difficult to track bills and due dates. The risk of over-leverage also increases.

Build spending discipline

Experts suggest making a monthly budget and sticking to it. Budgeting tools and apps can help. “Consumers who actively track their expenses feel more in control of their financial decisions,” says Jolly.

 

Credit card holders should not to treat credit card limits as income. As far as possible, they should defer purchases until they can afford to buy with their own money.

What to do if you are on the verge of default

Card users who find it difficult to repay their dues on time should pay at least the minimum amount due (MAD). “Paying MAD will ensure that your credit score is not impacted. You will also avoid paying a late fee. However, the interest on the due amount will keep accumulating,” says Radhika Binani, chief product officer, Paisabazaar.

 

Next, consider converting the outstanding on your credit card into EMIs. “This will lower the interest rate to 14–24 per cent, much lower than the rate on revolving credit. You also be able to avoid a hit on your credit score due to missed payments,” says Ramamurthy. Borrowers also get more time to pay their dues.

 

Kumar points out that conversion to EMI requires payment of processing fees, and also reduces the credit limit available on the card.

 

Settlement means that the customer pays less than he owes, and the rest of the amount due gets written off. “The bureau marks this account as ‘settled’ in the credit report. This can hurt your credit score significantly and make it difficult to avail credit in future,” says Binani. Always treat settlement as the last resort.

Try debt consolidation

Those with dues on multiple credit cards may consider consolidating them into one loan. “This may come with more favourable repayment terms such as lower interest rates and affordable EMIs. It simplifies your repayment process as there are fewer payments to track and repay,” says Adhil Shetty, CEO, BankBazaar.com.

 

This is a good alternative so long as you don’t need to borrow again before the consolidated loan is closed.

How to get out of a debt trap

 

Avalanche method: This involves listing all debts and prioritising repayment of the one with the highest interest rate first, while making minimum payments on the others. This helps you pay the least amount of interest

Snowball method: Suitable for borrowers who need motivation. Involves repaying the smallest loan first to build a sense of achievement before moving on to larger debts

If neither work, borrowers struggling to manage high debts should consider consulting debt counsellors, who can help with budgeting, repayment planning, and negotiating with lenders

  (The writer is a Mumbai-based independent journalist)