India is witnessing a sharp rise in consumer borrowing, especially among millennials. With the ease of credit access through Buy Now, Pay Later (BNPL) schemes, easy Equated Monthly Installments (EMIs), and increased e-commerce consumption, the younger population is falling deeper into the debt trap. By June 2024, India saw a staggering increase in credit card defaults, with the rate rising to 1.8%, and outstanding dues reaching an all-time high of Rs 2.7 trillion.
The Rise of Credit Card Debt
Many young consumers are finding it convenient to swipe their credit cards for high-value purchases, often exceeding their monthly budgets. A key factor contributing to this trend is the rising popularity of BNPL and EMI options, allowing purchases without immediate cash outflow. While these services offer instant gratification, they come with a hidden cost: escalating credit card bills and interest charges if not paid on time.
According to reports, millennials are most affected, as they make up the majority of users opting for these credit facilities. With the proliferation of e-commerce platforms, shopping for gadgets, fashion, and lifestyle products has never been easier. However, maxing out credit card limits for such purchases has led to more non-performing assets (NPAs) in the banking sector. Defaults are increasing as many fail to manage their credit effectively.
Defaults and Rising NPAs
The alarming rise in credit card defaults, touching 1.8% in mid-2024, highlights the risks associated with overborrowing. Banks are now grappling with increased NPAs due to unpaid credit card dues, which have grown to Rs 2.7 trillion. This indicates a broader trend of financial instability among young professionals, many of whom are first-time credit cardholders.
Temptation of Easy Credit
One of the primary drivers behind this credit boom is the sheer ease with which loans are now accessible. Digital platforms have made it simple to obtain instant loans, increasing dependency on credit cards for daily expenses. BNPL and EMIs encourage more spending than one can afford, leading consumers into a cycle of debt accumulation. What seems like a convenient payment plan can quickly spiral into a financial burden if not handled responsibly.
Managing Credit Responsibly
Despite the growing trend of credit misuse, financial experts stress the importance of responsible borrowing. While instant credit offers flexibility, young borrowers must be cautious. Here are some key strategies to manage credit card usage and avoid debt:
- Track Your Spending: Keeping a close eye on your credit card transactions helps prevent overspending and ensures that payments are manageable within your income.
- Pay More Than the Minimum: By paying only the minimum due, interest charges accumulate, making it harder to clear the outstanding balance. Always aim to pay more than the minimum due to reduce debt quicker.
- Avoid Impulsive Purchases: BNPL and EMI schemes make it tempting to buy high-ticket items, but it’s essential to think twice before making impulse purchases that could strain your finances later.
- Set a Monthly Credit Limit: Establishing a personal limit based on your income ensures you stay within your financial means.
The Need for Financial Awareness
As credit card usage surges, the need for financial literacy is more critical than ever. Many millennials are unaware of the long-term impact of defaulting on payments, including damage to credit scores and the inability to secure loans in the future. Financial institutions and government agencies should promote responsible borrowing through awareness programs that emphasize the risks of overleveraging.
Conclusion
While the surge in credit card usage and BNPL schemes has provided financial flexibility to many young Indians, it’s also led to a dangerous increase in debt levels. As defaults and NPAs rise, it’s crucial to manage borrowing wisely and rethink how credit is used. To stay financially healthy, millennials must strike a balance between convenience and responsibility, ensuring that they do not fall into a cycle of mounting debt.
By taking proactive steps to limit unnecessary spending and pay off balances promptly, young borrowers can avoid the pitfalls of excessive debt and maintain a strong financial future.
