Using the wrong credit card? It could be costing you ₹2 lakh a year

India swipes more, saves less: Most cardholders fail to unlock full rewards

The value of credit card transactions has more than tripled over the past five years, rising from ₹6.3 lakh crore in FY21 to ₹21.1 lakh crore in FY25, while the number of transactions surged from 176.4 crore to 477.4 crore.

 

But amid this spending boom, a new study suggests that most Indians may be leaving significant money on the table.

 

According to a study by 1 Finance Magazine, nearly 92 per cent of credit card users analysed were not optimising their card benefits and rewards. As a result, many cardholders are earning barely half of the savings they could potentially unlock by simply using cards better aligned to their spending habits.

 

 

The ₹2 lakh question

 

The study analysed transaction data from 129 individuals across income groups and found that the average cardholder currently saves around 4 per cent of annual spending through rewards, cashback, points and card benefits.

 

However, with proper card selection and optimisation, savings could potentially rise to 10 per cent or more, depending on spending levels.

 

For high-spending households, the difference is substantial.

 

The study found that consumers spending more than ₹15 lakh annually could potentially be foregoing over ₹2 lakh every year because their cards are not aligned with their spending patterns.

 

Why are people losing money?

 

The answer is surprisingly simple.

 

Most consumers choose credit cards based on:

 

• Welcome bonuses
• Brand reputation
• Bank relationships
• Airport lounge access
• Sales promotions

 

Few actually analyse where they spend the bulk of their money.

 

For example, a family that spends heavily on travel, dining and online shopping may continue using a generic cashback card that offers limited rewards in those categories.

 

Similarly, a frequent traveller could be earning significantly higher value through airline miles or hotel loyalty programmes but may instead be redeeming points for low-value merchandise.  Potential vs Current Savings by Annual Spend Bracket: 

92% of cardholders from the dataset are leaving substantial savings on the table primarily because their cards are not aligned with their actual spending patterns.

 

According to the study, the biggest issue is not under-spending or over-spending—it is misalignment.

 

India's reward economy is getting bigger

 

The findings come at a time when India's credit card ecosystem is becoming increasingly sophisticated.

 

Banks are competing aggressively by offering:

 

• Category-specific cashback
• Airline miles
• Hotel points
• Dining discounts
• Fuel rewards
• Shopping vouchers
• Lounge access

 

Reward structures today are significantly more complex than they were five years ago.

 

As a result, consumers who fail to optimise card usage risk earning substantially lower returns on spending they would undertake anyway.

 

The problem with owning too many cards

 

Interestingly, the study argues that consumers do not necessarily need more cards.

 

Instead, they need fewer but better-matched cards.

 

According to the framework proposed by 1 Finance Magazine, the ideal setup is often a one- or two-card strategy:

 

• One primary card covering 60-70 per cent of spending.
• One complementary card targeting specific high-spend categories.

 

Many consumers accumulate multiple cards but fail to use them strategically, leading to fragmented spending and diluted rewards.

 

The redemption trap

 

The study also highlights another common mistake: poor redemption choices.

 

Many users redeem points for:

 

• Merchandise catalogues
• Low-value cashback options
• Gift items

 

However, travel bookings and select brand vouchers often deliver significantly higher value per reward point.

 

In some cases, the difference in redemption value can be two to five times higher.

 

This means two cardholders earning identical points could receive vastly different real-world benefits depending on how they redeem them.

 

A real-world example

 

The study cites the case of an individual named Ajay, whose effective savings rate increased from about 3-4 per cent to 8.5-9 per cent after restructuring card usage and redemption strategies.

 

The optimisation generated annual benefits of approximately ₹85,000-₹95,000 without any increase in spending.

 

The gain came purely from better alignment between spending behaviour and reward structures.

 

The bigger lesson

 

Animesh Hardia, Editor-in-Chief of 1 Finance Magazine, cautions against interpreting the findings as encouragement to spend more.

 

"There's a healthy way to read this and an unhealthy one. The unhealthy one is to chase rewards by spending more, which defeats the purpose. The healthy one is to take the spending you would do anyway and route it through a card that actually rewards it," he said.

 

What should cardholders do?

 

The study recommends a six-step review process:

 

• Analyse 6-12 months of spending.
• Categorise expenses by spending bucket.
• Match spending with reward structures.
• Consolidate into a one- or two-card strategy.
• Track milestone benefits and spending thresholds.
• Redeem points through high-value channels.

 

1. Review 6 to 12 Months of Spending: Analyze actual transaction history to identify consistent high-spend categories and seasonal patterns before making any recommendations. 

2. Categorise Expenses and Map to Reward Structures: Break spending into seven key categories (Shopping, Travel & Leisure, Food & Dining, Groceries, Utilities, Fuel & Transportation, Movies & Entertainment). Rank by share of wallet and map to accelerated reward rates, milestone bonuses, and portal benefits from major issuers. 

3. Build a One-to-Two Card Stack, not a Collection: Prioritise a strong primary card (ideally covering 60-70% of spend) plus at most one complementary card. Avoid card clutter that dilutes rewards and increases complexity. 

4. Help  Reach Milestones Efficiently: Strategically route spending to cross spending thresholds that unlock bonus points, higher reward tiers, and milestone benefits without lifestyle changes.

 

5.  High-Value Redemptions: Focus on optimal redemption channels — travel bookings, brand vouchers, or specific portals — rather than low-value catalogue options. Points redeemed for travel or select vouchers often deliver 2–5x higher effective value. 

6. Position Credit Card Advisory Within the Broader Financial Plan: Integrate card optimization as a cash-flow efficiency tool that supports overall goals like lowering effective living costs and freeing up funds for investments.