How to regain control when you’re caught in a credit card debt trap

India’s love for credit cards has been growing at a rapid pace.

Over the past five years, new credit card issuance has grown at nearly 20% compounded annually. The number of active credit cards has more than doubled from 55 million in FY20 to over 111 million in FY25, while outstanding balances have ballooned from about ₹30,500 crore in FY15 to nearly ₹2.9 lakh crore by FY25, according to industry estimates and RBI data.

The rapid expansion in cards and outstanding dues raises an uncomfortable question: are more Indians slipping into a credit card debt trap?

Outstanding balances per card have also climbed steeply—from ₹1,600 in FY15 to nearly ₹25,700 in FY25—signalling significantly higher credit utilization.

For those who have already fallen into the trap, is there a practical way out? Experts say—yes, there is.

Usage vs intent

The real issue, experts argue, is not the rise in credit card usage, but the purpose for which cards are being used.

“While rising credit card usage reflects both expanding financial access and growing consumer confidence, the intent behind spending matters more than the volume,” said Yashoraj Tyagi, chief executive officer, CASHe, an online lending platform.

“When usage grows faster and financial literacy doesn’t catch up, credit stops being just a convenience tool, it becomes a survival tool,” said Bhuvanaa Shreeram, co-founder of House of Alpha Investment Advisers, a Sebi registered investment advisory firm.

Rising delinquencies suggest that for a segment of borrowers, cards are not just financing convenience purchases—they are also plugging cash-flow gaps. And that, she believes, is the real problem.

Household stress

According to the Reserve Bank of India’s (RBI) Financial Stability Report, household debt in India rose to about 41.3% of GDP by end-March 2025, up from around 38% in recent years. Much of this increase was driven by consumption-oriented loans, including unsecured retail loans such as credit cards and personal loans.

“It is concerning if individuals using credit for essentials has become a habit,” said Tyagi. Credit, he added, should be treated as a liquidity bridge—not an income substitute.

Recognising the risks, the RBI tightened norms in November 2023 by increasing risk weights on unsecured lending, making it costlier for banks to aggressively grow these portfolios. The regulator also asked banks to tighten lending standards, limit automatic credit-limit increases, and closely monitor digital and fintech-led lending.

The impact is visible. In Q2 FY26, banks issued 4.4 million new credit cards—a steep 28% decline from 6.1 million cards issued in the same period last year.

However, experts caution that regulation alone cannot resolve household-level cash-flow stress.

The risk for borrowers still exists!

“I believe the risk is only postponed, but not resolved,” said Aditya Dhage, founder of Vedant Finserv and a member of Network FP. He explained that households that are currently under cash flow pressures try to resolve this using the easy money available through credit, which lands them in further financial stress.

Apart from the regulator and the issuers’ taking cautious steps, borrowers and users need to be mindful too, say experts.

The minimum due illusion

Many users underestimate how credit card interest works.

Paying just the minimum due keeps the account active—but interest continues to accumulate on the unpaid balance.

“Normalization of carrying forward balances is dangerous,” said Shreeram.

If a household cannot clear the full balance for even a few consecutive billing cycles, interest compounds rapidly. Interest is charged not only on spending, but also on unpaid interest. Within four or five months, she added, a large share of income can start going toward servicing past consumption rather than meeting present needs.

If paying minimum dues becomes a habit, Dhage warns, it is a sure way of spiraling into high interest rate traps—credit card rates can go up to as high as 45% per annum.

Are you in a debt trap?

Credit card stress rarely arrives overnight. It builds gradually, often masked by reward points, cashback offers and rising credit limits.

“Paying only the minimum for multiple months, using one credit line to repay another or depending on the next billing cycle to manage the last one, are early warning signs of a household heading to a debt trap," said Shreeram.

“The moment one starts depending on lifestyle expenses using a credit card without having a buffer of six months in liquid instruments like bank balance or FD, means you are in the trap,” said Dhage.

The good news: even deep credit card debt can be reversed with disciplined steps.

How to escape credit card debt?

Start by putting everything on paper.

“Note down your total outstanding balance, interest rate, minimum payment, and payment due date for each card,” said Raj Khosla, founder and MD, MyMoneyMantra.com, a financial services marketplace.

Stop using credit cards temporarily and switch to safer payment modes such as debit cards, UPI or cash to prevent fresh debt accumulation.

Next, “create a payoff strategy, such as the avalanche method,” said Khosla. In this approach, you pay minimum dues on all cards but direct extra money toward the card with the highest interest rate first. Once that card is cleared, move to the next highest-rate card. This reduces overall interest burden.

For those who need quick motivation, the snowball method may work better. Here, you pay minimum dues on all cards but focus extra payments on the smallest outstanding balance first. “Once the smallest is cleared, move to the next smallest,” he said. The psychological boost of closing smaller loans can motivate borrowers to tackle larger ones.

Khosla advised borrowers to proactively engage with card issuers. “Speak to your credit card providers one by one and ask for a lower interest rate, EMI conversion option, balance transfer to a lower-interest card, or settlement (if the situation is worse), before defaulting.”

“Consider taking a debt consolidation loan,” he added. A personal loan at a lower interest rate can help replace multiple high-interest card dues with one fixed EMI.

Build buffer

In parallel, start building an emergency fund to prevent falling back into debt. Aim for at least six months of expenses.

“An emergency fund prevents you from falling back into a debt trap,” said Khosla. “Either save in a bank savings account, invest in a Sweep-In/ Auto-Sweep fixed deposit, or invest in liquid mutual funds.”

Shreeram noted that household balance sheet data of clients shows emergency savings remain thin for many urban households. There is growing anecdotal evidence, she said, that credit cards are filling the role emergency savings once played—which is worrying.

Her advice aligns with Khosla’s: avoid being swayed by reward benefits, pay outstanding balances in full and on time, and limit usage to 30% of your credit limit.

Once debt-free, reach out to a registered financial advisor and begin investing systematically toward long-term financial goals. 

Disclaimer: MintMoney has a tie-up with fintechs for providing credit; you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards and credit score. MintMoney does not promote or encourage taking credit, as it comes with a set of risks, such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit. 

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