Mumbai : 'Users should protect their savings goals before allocating money to discretionary expenditure.'
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Gen Z is adopting credit cards earlier, with many accumulating sizeable balances and taking additional unsecured loans within a year.
Experts recommend limiting credit card spending to 20-30 per cent of take-home income while keeping savings at 20 per cent or more.
Paying only the minimum due can trigger high interest costs, GST, late charges, and loss of the interest-free repayment period.
Warning signs of overleveraging include relying on credit for essentials, paying only minimum dues, and frequently using EMI conversions.
Building a strong credit score requires timely full repayments, low credit utilisation, and avoiding multiple loan or card applications together.
In March 2026, Gen Z consumers aged 30 or below made up half of all first-time credit card customers. Among those aged 24 to 30, 31 per cent already had at least two active credit products.
Within three months of receiving their first card, 28 per cent had built balances of Rs 25,000 or more, while 69 per cent took on another unsecured loan within a year, according to a TransUnion CIBIL white paper. Clearly,
Gen Z is entering the credit card market earlier and is already saddled with debt. They also build balances faster and add fresh credit sooner.
Align spending with repayment capacity
The sanctioned credit limit only shows the maximum amount a lender is willing to extend. It does not reflect a user's affordability.
"Affordable card spending should be determined by monthly cash flow after accounting for essential expenses, existing EMIs (equated monthly instalments) and other investments, and emergency savings," says Rohit Garg, co-founder and CEO, Olyv.
"Savings should ideally be at least 20 per cent of take-home income," says Saurabh Bansal, founder, Finatwork Investment Advisor, a Sebi-registered investment advisor.
"As a thumb rule, credit card spending should be restricted to 20-30 per cent of take-home income, provided the entire balance is repaid every billing cycle," says Garg.
Total EMI obligations should remain below 35-40 per cent of take-home income. Users should keep overall credit utilisation below 30 per cent. "Utilisation of 10-20 per cent is preferable for a strong credit profile," says Arun Ramamurthy, author of the book, Unlock the Power of Your Credit Score.
Paying only the minimum amount due may prevent default, but interest continues to accrue. "Annualised credit card interest rates are 36-48 per cent or higher, depending on the issuer," says Garg. Bansal adds that goods and services tax on interest and applicable late charges can cause the debt to snowball. Users who carry a balance also lose the interest-free period on fresh purchases.
Repeatedly paying only the minimum amount due, using one credit card to repay another, relying on cards for groceries or other essentials, and feeling anxious before payment due dates are a few signs of overleveraging.
"Frequently converting routine expenses into EMIs indicates repayment stress. Regularly crossing 30-40 per cent of the available limit may also indicate excessive credit use," says Bansal.
A cardholder who sees these signs should stop new discretionary spending and follow a disciplined repayment plan.
Converting a purchase into EMIs can provide short-term relief. "A small outstanding amount may be converted for a short tenure of two to six months when current liquidity is inadequate," says Harsh Grover, co-founder, LoansJagat. Issuers often offer EMI conversion without assessing the user's income or overall financial position, which is helpful in periods of distress.
But a user who converts a large purchase into EMIs without checking repayment capacity could create a heavy debt burden. "Younger users with relatively low incomes may be affected more severely," says Grover. Ensure that future instalments remain affordable after accounting for other expenses.
Consider all the costs attached to EMI conversion. EMI interest may range from approximately 10.5 per cent to 25 per cent annually.
Reward points earned on the purchase are generally reversed after conversion. Processing fees may range from 1 per cent to 5 per cent of the transaction amount.
Grover suggests that users factor in all these costs before deciding to convert to an EMI. A lower-interest personal loan may preserve rewards and involve a lower processing fee.
Young credit card users can build a sound credit history by paying their dues in full by the due date and keeping utilisation below 30 per cent. "Avoid applying for several cards or loans around the same time," says Ramamurthy.
Avoid cash withdrawals, as charges apply immediately and there is no interest-free period
Do not spend merely to earn cashback or reward points. Avoid impulse purchases merely because credit is available. Treat the credit limit as a facility that provides financial flexibility, not as additional income
Understand the billing cycle and be aware of the payment due date
