People have been using credit cards for a long time now as they can spend money when they are low on it, get decent interest rates, build their credit score, and earn exclusive rewards and benefits. Still, not everyone is convinced with the idea of credit cards and they are losing credibility in recent times.
Many factors like high charges and fees, difficult application process, chance of identity theft, etc. increase the inaccessibility of credit cards. This has also led to a decrease in online and offline credit card usage in India. Youngsters are ditching best credit cards and moving towards other financial services.
There has been a steady decline in credit card usage especially among youngsters. Here is why –
High Rates of Interest
The most common and obvious reason is the high interest rates charged by credit card issuers. On an average, all popular cards charge around 3-3.5% interest per month which is quite high. When people carry forward their outstanding card balance, the interest keeps on adding which can get difficult to pay in the long run.
Most of the people avoid getting a credit card because of the interest rate. One option to tackle high interest rates is to pay your dues on time and not carry forward balance to the next month. This way you will have to pay minimum interest and if you pay off your dues in the no-interest period then it is even better.
Tendency to Overspend
Some people are not financially disciplined and have a big possibility of overspending. Such people carry a huge risk of ending up in a debt trap if they decide to get a credit card. A research shows that people spend more money when they swipe their card instead of when they make their payments with cash.
Someone who tends to overspend will always refrain from getting a credit card. Unless you have financial discipline, self-control, and patience, it is not recommended to get credit cards.
High Fees and Hidden Charges
The idea of paying high annual fees for a credit card in addition to high interest rates puts off many people. Now there are many lifetime free credit cards that don’t charge annual fees but still there are many other charges associated with it that can drain your money quicker than you know.
Some other charges of a credit card that you have to bear include late payment fees, balance transfers, foreign transaction fees, fuel payment, cash withdrawal, etc. Also, there can be some hidden charges which you are not aware of while getting a credit card. Therefore, you will have to pay many charges for a credit card and many people do not like this fact.
Difficult Application Process
Applying for a credit card can be a long and tiring process for some individuals. Even though, you can apply for a credit card online now, some people still think it is time-consuming. You have to make sure you are eligible for a card and need to submit various documents with your application.
Banks will perform a credit check and go through the documents when processing your application. All this can take several days and if you get rejected, then you will need to do everything again. The application process is why many people avoid credit cards.
Ongoing Loans and EMIs
Many people have ongoing loans and EMIs they have to pay every month. Many youngsters have their student loan to pay off and they don’t earn very high in the start of their professional career. Getting a credit card means they will have another bill to pay on top of their ongoing loan EMIs.
This can leave them in a hard situation as all their income will go into paying debt. Thus, ongoing credit is a big reason why people do not get a credit card.
Preference Towards Cash
In the past few years, people have moved on to digital currency and paperless transactions but some of them still think cash is best. When UPI, credit cards, and other online payment options are rising in the country, some people with a traditional mindset and beliefs still think using cash is the right choice.
Everything in the world is driven by technology today and online payments is a huge part of the future. However, some people believe borrowing cash from their family members is better than a credit card or taking loans. Mobile wallets and cryptocurrency are rising, using credit cards is easier than before, protection from and reversing fraudulent transactions has become easier, still the idea of using cash only is engraved in the minds of many people.
Alternatives to Credit Cards
No doubt credit cards can be beneficial and highly useful, still some people avoid them due to reasons discussed above. Many individuals refrain credit cards because various credit unions and financial institutions have laid out better, more accessible credit options.
People who want to improve their score and avoid the risks of a credit card are moving on to these alternatives. Let us check some of these out –
Buy Now Pay Later (BNPL) Cards
The Buy Now Pay Later or BNPL service is a nice alternative to traditional credit cards. These cards work with associated online merchants which allow you to buy what you need without immediately paying money from your account. Interest rates are lower than credit cards and you can pay later for your purchases comfortably. There are many BNPL cards or service providers and you can even use them to build your credit score.
Zero Interest Digital Cards
Another nice alternative to credit cards is zero interest digital cards like LazyPay. You just have to do your KYC to use it and not deal with logging in or entering OTPs anywhere. It is similar to BNPL cards with the only difference being that you don’t have to pay interest on your repayments.
We cannot deny that credit cards offer multiple rewards and benefits, access to money during need, and a chance to build a decent credit history. However, there are several drawbacks related to them like high interest rates, high charges and fees, and difficult application process.
These are the major reasons why credit cards are losing credibility in India. Moreover, youngsters in our country are moving onto safer alternatives like BNPL and zero-interest credit cards. Let us know your views about this – do you prefer using a credit card or you believe that other credit instruments are better.