.png)
A credit card used as a payment instrument and settled in full by the due date is a convenience. The same card, used as a source of revolving credit, is one of the more expensive liabilities an Indian household can carry. Consumer instalments offered at the point of sale — including those described as “no-cost” — are a related product. Neither produces a deduction in the computation of an ordinary individual’s income. This article describes the cost of revolving credit, the effect of paying only the minimum amount due, and the place of shop instalments in the order of use already stated in Series 2.
If the amount due on the statement is not paid in full by the due date, interest is charged on the outstanding, typically at an annualised rate in the region of 36 to 42 per cent, plus applicable tax on the fee where levied. The rate is contractual. It does not depend on the household’s equity-fund return in the same year. A systematic investment plan that continues while this balance continues is not a balanced strategy. It is a decision to borrow at a high rate in order to invest at an uncertain one.
Payment of the minimum amount due keeps the account from being reported as overdue. It does not stop the interest. It is the option that allows the balance to persist for months or years while remaining, in conversation, “under control.” The statement to read is not the minimum. It is the total amount due and the interest charged in the period.
Electronics, furnishings and travel are frequently offered with a conversion into equated monthly instalments. Some of these conversions carry an explicit rate. Others are described as “no-cost.” In the latter case the cost is often borne by the merchant as a discount to the card issuer, or is included in the marked price. The household still has a fixed commitment for a stated number of months. Several such commitments, taken in different shops, produce the same effect as a personal loan: a reduction in surplus available for the reserve and for the existing investment mandate.
Converting a revolving card balance into a card-issued instalment may reduce the rate relative to the revolving rate. It does not make the debt inexpensive. It is a method of leaving the revolving rate, not a method of placing the liability in the same class as a housing loan.
Series 2 placed expensive unsecured balances first when extra money arrives. This article is the reason. Interest at 36 per cent or more, with no statutory deduction for an ordinary individual, will consume more of the year’s income than a missed increment to a systematic plan. The emergency reserve exists so that a genuine shock need not be placed on the card. Using the card because the reserve was never completed is a failure of the first pillar, not a feature of the third.
Until the revolving balance is cleared, debates about housing-loan prepayment, about a new folio, and about a higher equity allocation are premature. The rate on the card dominates those comparisons.
Interest charged on a revolving card balance is not an allowable deduction in computing the total income of an individual who is not carrying on a business for which that borrowing is wholly and exclusively used. Paying the interest does not reduce the tax on salary.
Ritu, who lives in Jind, paid the minimum due on two cards for fourteen months and continued a systematic investment plan of ₹8,000. When the two statements were placed beside the plan, the interest charged in a typical month was comparable to the amount being invested. She stopped the plan for five months, cleared both cards, and then restored the plan at ₹10,000. The interruption was uncomfortable. The interest that ceased was not.
The card is a useful instrument when it is a method of payment. It becomes an expensive liability when it is a method of postponing payment. The distinction is the due date and the total amount due, not the credit limit the issuer has assigned.
Treating a rising credit limit as evidence of financial progress. The limit is the issuer’s assessment of what it is willing to lend. It is not an assessment of what the household should owe.