The Credit Card ‘Swipe Trap’: 5 Hidden Financial Risks You Must Watch Out For | Business News

Last Updated:October 27, 2025, 17:22 IST

Overspending on credit cards can hurt finances. Spending Rs 40,000 out of a Rs 50,000 limit may reduce credit score and even lead to a lower card limit

Spending must remain within limits, and expenses should be tracked using a budgeting app. (Representative/Shutterstock)

Credit and debit cards, often referred to as plastic money, have revolutionised the shopping experience, making it incredibly easy and convenient. Credit cards, in particular, allow consumers to purchase their favourite items instantly, even without sufficient funds in their accounts. However, this convenience comes with potential financial pitfalls. If not managed properly, credit cards can become a financial burden. Understanding these risks can help individuals avoid such traps.

High Interest Rates Can Trap You In Debt

One of the primary dangers of credit cards is the high interest rates.

• Consider the case of Rahul, who borrowed Rs 10,000 with the intention of repaying it the following month. However, with interest rates ranging between 18-36%, his debt ballooned to Rs 15,000 within six months, trapping him in a cycle of debt.
• This illustrates the danger of carrying an outstanding balance on a credit card, where high interest rates can turn a small debt into a substantial one.
• To avoid this, it is crucial to pay the full bill each month and prioritise clearing the card with the highest interest rate first. Additionally, opting for the EMI (Equated Monthly Installment) option, while checking the interest calculator, can be beneficial.

The Ghost Of Late Payments

• Late payments pose another significant risk, as they can negatively impact credit scores for up to seven years. This can affect not only the ability to secure loans but also job prospects and rental applications.
• Setting up auto-payment and calendar reminders can help avoid late payments. At the very least, paying the minimum amount on time is essential, though full payment is always preferable.

The Danger Of Overspending

• Overspending is a common issue with credit cards. For example, if the card limit is Rs 50,000 and Rs 40,000 is spent, it could lead to a reduced credit score and a lowered card limit.
• Spending more than 30% of the credit limit can label a person as ‘high risk’ to banks.
• To prevent this, it is advisable to follow the 30% rule, using budget apps and distinguishing between needs and wants.

The ‘Greed Trap’ Of Credit Card Rewards

• Many people end up shopping more than needed just to earn cashback. Rewards worth Rs 2,000 often lead to an extra spend of Rs 20,000.
• The lure of points, miles, or cashback creates an illusion of savings — when in reality, it’s overspending.
• To prevention this, rewards should be treated as a bonus, not a goal. Spending must remain within limits, and expenses should be tracked using a budgeting app.

The Hidden Ghost Of Secret Charges

• Credit cards often include hidden charges. For instance, Vikram used his card during an overseas trip and was shocked to see an additional bill of Rs 5,000 — comprising a 3% foreign transaction fee, annual fee, and late payment charge.
• Annual fees, overlimit penalties, and currency conversion costs are among the many charges that often go unnoticed.
• To prevent this, the fine print must be reviewed carefully before selecting a card. Monthly statements should be checked for unexplained charges, and opting for a no-fee card is advisable.

Follow These 3 Golden Credit Card Rules

To be a savvy credit card user, one should follow these three golden rules:

• Track every transaction with apps like Mint or PhonePe,
• Create an emergency fund instead of relying on credit cards,
• Stay informed about RBI guidelines, which cap interest rates at 36%. Smart usage is the key to avoiding financial pitfalls.

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