Case No. 3 – The Boon and Bane of Credit Card Usage

 

Case No. 3

The Boon and Bane of Credit Card Usage

15.03.2025

While reviewing the title above, it becomes apparent that the discussion revolves around an addiction that is easily accessible in the market and frequently advertised on television. Among the numerous calls received daily, at least one or two are about selling credit cards—a scenario many of us have experienced. 

 

 The History of Credit Cards 

The concept of credit cards originated around the 1900s in Western countries. In the 1920s, retailers in America began issuing credit tokens for purchases. In 1950, "Diners Club" introduced the first modern credit card, allowing people to transact without cash at multiple locations. Subsequently, in 1958, the Bank of America successfully launched it in the financial markets, and its use gradually spread worldwide. By the 1960s, banks adopted the technology, leading to the creation of global brands like "Visa" and "Mastercard." 

In India, credit card usage began in the 1980s. Credit cards are often referred to as "plastic cards" or "plastic money." Initially designed to alleviate financial difficulties, credit cards were used judiciously. People perceived them as a boon, which seemed logical. As credit card usage surged globally, companies introduced new schemes, making credit cards more affordable and accessible to customers. 

 

 How Credit Cards Work 

The credit limit on a credit card is based on the user's income, credit score, and repayment history. Initially, a credit limit of ₹10,000 could be increased up to ₹10,00,000, depending on the usage. Customers also enjoy various benefits like discounts, rewards, and cashback on purchases. 

Credit cards provide interest-free periods (usually 45 days) to repay the borrowed amount. If repayment isn't possible within this timeframe, customers can pay the "minimum due" and carry forward the balance with interest. 

 

 Challenges with Credit Card Usage 

Each credit card involves an annual fee, which varies by company. If payments are not made within the stipulated time, interest rates ranging from 18% to 42% are charged, along with late fees. Failure to make timely payments negatively affects the user's credit score (CIBIL score), creating hurdles for future loans. Mismanagement and overspending on credit cards often lead to financial troubles, which can spiral into a "game of loans."

 

 A Real-Life Story: Rajesh’s Struggles 

Rajesh (a fictional name), a married man from a middle-class family and father of two young daughters, worked in a private company earning ₹85,000 monthly. Initially, he managed his expenses well, but rising costs for his children's education and family needs made it challenging. 

He took one credit card and used it responsibly, paying bills on time. However, life took an unexpected turn when his wife's health deteriorated, leading to high medical expenses. To meet these costs and other family needs, he acquired multiple credit cards and personal loans. 

 

 The Debt Trap 

Although Rajesh managed to repay the debts initially, the high-interest rates and mounting EMIs soon surpassed his income. He required ₹1,80,000 monthly to repay his loans, but his salary was only ₹85,000. Unable to cope, he borrowed more, creating a vicious cycle. 

 

 Breaking Point 

The mental strain of repayment led Rajesh to attempt suicide, but his family intervened in time. With the support of his wife and relatives, Rajesh sought help. 

 

 The Solution 

Rajesh reached out to financial advisors, who negotiated with banks and financial institutions to reduce interest rates and waive penalties. He also borrowed interest-free money from relatives to repay a significant portion of his debts. With proper financial planning, he reduced his EMIs to manageable levels. 

 

 Lifestyle Changes 

Rajesh learned a valuable lesson and made significant lifestyle changes. He shifted from luxury spending to focusing solely on essentials. His family also adapted to this new mindset, leading to stability in their lives. 

 

 Key Takeaways 

Credit cards can be both a boon and a bane, depending on how they are used. Responsible usage and proper planning can maximize their benefits, while negligence can lead to financial and mental distress. 

 

 Tips for Using Credit Cards Wisely

1.               Pay on Time: Avoid late fees and interest by making timely payments.

2.               Limit Spending: Use only 35% of your credit limit to maintain a good credit score.

3.               Use Secure Platforms: Protect against cyber fraud by transacting only on trusted websites.

4.               Leverage Rewards: Use cashback and rewards wisely to maximize benefits.

5.               Create a Budget: Plan monthly expenses to avoid overspending and debt accumulation. 

 

 Consequences of Overuse 

1.               Financial Crisis: Excessive spending can lead to unmanageable debt.

2.               Interest Burden: Paying only the minimum due increases interest costs.

3.               Mental Stress: Financial strain often results in severe mental health issues.

4.               Social Problems: Some people resort to extreme measures like suicide, creating broader societal concerns.

 

Conclusion 

Credit cards are powerful financial tools, but their benefits depend entirely on responsible usage. With discipline, planning, and awareness, credit cards can provide financial flexibility and convenience. Misuse, however, can lead to severe consequences. 

 

For legal or financial assistance: 

Adv. Vishal Gade 

Iconic Legal Services 

Contact: 9987112056  

 

Thank you!