Why not to use credit card?

Do you use credit card? Yes? Do you know why not to use credit card? Read further to know more. This article is written for whom? It targets those people who think using credit card is wise. Why they think so?

Suggested Reading: Utility of credit utilization ratio explained with examples.

They think that using credit card is great because of the following 3 reasons:

  1. Reward points– like Airmiles, cash back etc.
  2. Convenience– online payments, no cash carry etc.
  3. No interest load– as bill are paid on time.

People who are otherwise financially aware, still stick to their credit cardsfor the above 3 reasons.

This article is meant for these people in particular (my self included).

[P.Note: I am (was) a big fan of Airmiles paid by my credit card.]

Nothing dramatically changed (for me) in last few months related to credit card.

But deep inside my subconscious, I know that I am missing a point.

A person like me pays virtually nothing to the credit card-issuing bank (except for a meagre annual fee).

If there are many people like me in this world, how credit card-issuing bank’s make money out of us?

To explain you better, allow me a small diversion from this present topic.

[Earn Air Miles every time you swap your credit card]

Non related example – To make a point.

Facebook use is free for us. So how they make money?

The answer lies in the phrase called “targeted ads”.

We share our personal details/likes/dislikes with Facebook, right?

Facebook use their algorithm to display “target ads” which compliments our needs/likes.

This is why advertisers say that, Facebook conversion rates are best. Even better than Google & Amazon.

What does it mean?

Though Facebook is free for us, but ‘they use us’ (our personal data) to generate money for the company, in a legal way.

(I feel Cambridge Analytica’s case of using Facebook data to “influence” peoples choice is an exception).

Why I have used the example of Facebook here?

To make a point that nothing comes for free in this world.

And Credit Card is certainly not for free.

[Earn Air Miles every time you swap your credit card]

#1. You can outsmart the credit card genius?

Even-though, we may think that we are outsmarting the credit card-issuing bank, by doing the following:

  • Paying all dues on time,
  • Earning Airmiles (rewards).

But this is not the right analysis of the real case.

What is the right analysis?

It is hidden in a doubt which says, “How credit card-issuing bank make money out of us?”

People who pay all credit card bills on time, these must be useless customers, right? Why?

Because these customers make no money for credit card-issuing banks…

Not really. Credit card-issuing bank anyways makes money with every transaction. How?

By the way of “interchange fees.”

#2. Who pays the interchange fee?

Allow me to present you a generalised view of how credit card-issuing bank makes money.

In every credit card transactions, these are the following entities involved:

  1. User Side:
    1. Card holder.
    2. Card-issuing bank.
  2. Merchant Side:
    1. The merchant.
    2. Merchant’s bank.

Every-time a card holder pays using a credit card, the Merchant’s bank pays an additional “interchange fee” to the card-issuing bank.

A “small portion” of this interchange fee is pure profit for the card-issuing bank.

In turn, the Merchant’s bank also charge a “small fee” to the merchant to handle credit card transaction requests.

But several such small-small fees eventually builds a huge pile of profitsfor the card-issuing bank.

Transaction fee is the real incentive for which the card-issuing banks issue and accept credit cards.

As if this was not all, they also charge “interest” on unpaid dues.

But the most abhorring part of it is, this interest rates are humongous (between 36%-42% per annum).

[Earn Air Miles every time you swap your credit card]

#3. Credit card is the most marketed product.

So now we know, how important is the “interchange fee” for credit card’s survival.

I hope this doubt is now gone that how credit card-issuing banks “really” make money.

So coming back to our question of, why not to use credit cards.

To get a better feel, lets ask another question…

Do you know why credit card is the most marketed product of this world?

The credit card companies across the world, spends billion of dollars to market this product, why?

Because if more people will use credit cards, more “interchange fee” will be collected.

Moreover, there are also late fee charges to support their bottom line.

Credit card is a money making machine for the banks.

[Earn Air Miles every time you swap your credit card]

#4. Why not to use credit card?

What we have seen till now is, how credit card companies make money out of us.

But it has still not answered, “why we shall not use credit card?”.

Yes its true. To an untrained eye, it is not easy to see the problem.

What an untrained eye sees?

Suppose you bought a T-shirt of worth Rs.1,000 using your credit card.

And then, you cleared the credit card bill in full, withing the due date.

You have not paid a dime extra.

Bought a T-Shirt worth Rs.1,000, and then cleared the credit card bill worth Rs.1,000.

Means, your cost was only Rs.1,000. No extra charges paid.

This cost would have remained the same had you paid using cash or debit card.

Hence, the usage of credit card seems to replicate the utility of cash, right?

This is what credit card companies wants us to believe.

But there are unsaid truths, which is not spoken about very often.

What is that unsaid truth?

It is related to human behaviour in general. Lets see what it is…

[Earn Air Miles every time you swap your credit card]

#5. Hidden truth about credit card usage…

Consider this, you have decided to visit Wonderla, with your friend.

Suppose you had a budget of Rs.2,500 for this trip.

This friend is very generous and organised. Hence he volunteered to handle all expenses by himself for the trip.

At the end of the day, the total expense would be evenly split into two.

So what happened afterwards is like this:

  • Travel cost – he paid, you did not bothered for the details.
  • Entry tickets – he purchased, you just watched.
  • Food cost – he paid, and you just had fun.
  • Souvenirs – he bought for you, and you let your wallet take rest.
  • Dinner – he paid the bill, you were almost unbothered.

It was like a fatherly gesture on part of your friend.

Hence you were extremely impressed with his kindness.

But during all these spending sprees, you almost lost track of what, where, and how much you spent.

The next day, your kind friend approached you with all the recorded expenses.

Your share of the expense was Rs.4,200. You almost had a mini heart attack seeing the total.

It was whose fault?

Your friend? Not at all. He was only helping.

The fault lies with you, your behaviour of becoming too care-free with your spendings.

This is what credit card does to us.

Here the role of the generous friend is played by the credit card.

When we pay using credit card, our bank balance does not reduce.

Why not to use credit card _1

This creates that “false sense of comfort”.

In our mind we are comfortable, believing that we can afford this purchase.

How this false sense of comfort is getting built-up?

Because of two things:

  1. Bank balance does not reduceupon credit card swaps.
  2. You don’t realise the total spentas on date.

#5.1 Cash Vs. Credit Card

Let see a pictorial representation of credit card purchase vs cash purchase…

  • Case 1 – When payment is made using cash/debit card. Every time a purchase is made, the bank balance simultaneously falls. This fall in bank balance activates the pain points (psychologically). Hence people spending using cash, tend to save more. Read: Advice of Krishna on how to active the pain point which using a credit card.
  • Case 2 – When payment is made using credit card. One can continue making purchases one after the other, but the bank balance will not reduce. This creates that false sense of comfort. The pain point gets triggered at the end of the month when one sees/pays the credit card bill. But this pain point soon gets neutralised. By the time the credit card bill is paid, the next paycheck has arrived. The bank balance is up-again. Which again starts to give a “false sense of comfort”. Hence people spending using credit card tend to spend much more.

[Earn Air Miles every time you swap your credit card]


There is no doubt that credit card usage has made the process of payment more convenient.

  • We have to carry less cash.
  • Transactions are faster (no counting, waiting for change etc).
  • Everything is done online, so life is easier & organised.

It is also true that credit card-issuing bank also lures us to buy/use their card by letting us build our reward points.

We can use this reward points for the following things:

  •  Cash Backs.
  • Gift vouchers etc.

All these facilities and convenience, costs a fortune to the credit card-issuing banks.

Hence, they cannot offer these card for free to us.

What is their hidden agenda?

Their agenda is not hidden. They do not try to hide it. All they do it to speak less about it.

But we spilled their beans in this article…

It is their hidden agenda that should motivate us not to use credit card.

What are the hidden agendas?

  1. Sell their card to as many people as possible.
  2. Motivate people to use credit card instead of cash or debit cards.
  3. Earn money on every transaction (interchange fee).
  4. Make TOO convenientfor us to spend, so that we lose track of how much we have spent.

Point #4 is most important.

That is what hurts us the most. This is one reason why I say not to use credit card.

How they try to make spending TOO convenient?

They use the following tricks and play with our behavioural psychology:

  • Digital payments are done on click of a button
  • Bank balance remains high for 2/3rd of the month.
  • The “total spent”is known only when the bill is raised (end of month).

Final words…

Earlier when our parents used to pay in cash, they used to feel something leaving them.

That was the feeling of “PAIN” of losing ones hard earned money.

That pain, triggers a psychology which helps us to spend less.

Now with credit card payments becoming more prevalent, that feeling of PAIN is almost gone. We feel it only ONCE, at the end of the month.

So what is the problem if we feel less PAIN?

A study says that, even a financially aware person tends to spend more using a credit card.

An average person spends much higher using credit cards.

So, if you want to save money, do this. Cut your credit card into two, and spank it into a dustbin.

I think I have given you some food for thought.

Think for yourself why not use credit card.

Please put your view in the comment section below.

Have a debt free life.

[Earn Air Miles every time you swap your credit card]

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Hi. I’m Mani, I’m an Engineering graduate who in pursuit of financial independence, has converted into a full time blogger. After working in the corporate world for almost 16+ years, I bid it adieu....read more

Disclaimer: The information provided in my articles and products are for informational purposes only and should not be considered as financial or investment advice. Read more.

9 Responses

  1. Nice Articles, Learnt hidden information of why not to use credit card.

    I think, Credit card makes you habit of spending salary before one month of earning when there is no money in saving account. So that, in this way one can not able to make even Emergency Fund of 3 months expenses. Forget about Financial Independence of saving of next 20 Yrs expenses.

    So, I destroyed my Credit Card & using only Cash & Debit Card.

  2. Thanks Mani for the nice article and explained well. Agree with your points. I have recently started using Credit cards and always pay the bills in full on time.

    I got an idea after reading your article on how to find the total amount spent and at the same time feel the pain while/after making CC payments.

    – Open one account in any New Age bank with high SB interest rate (paying 6-7% p.a)
    – Sole purpose of this account is to add equivalent money here from savings – everytime a Credit card is swiped, or used in online transaction – To feel the pain!
    – This will be used to pay the Credit card bill at EOM.
    – This will also earn 6-7% p.a interest till bill is paid.
    – Also the current balance in this account will tell us how much we have spent for the month. This helps in expense tracking.

    Pls let me know your views.

    1. But doing this will add add transaction fees and you will lose the value interest from your first saving account.
      I guess it can be better to use an app which show you complete balance and credit balance (in negative) to get a total balance available.
      Also for me if a email or sms could make me feel pain if for every credit card transactions it show me.
      ( These are just recommendations as a 21 year old kid. For mistake please forgive me)

      1. There are no transaction fees when is transferred from one saving account to other (use standard NEFT).

    2. I have 1 doubt here , since we are using the Credit card and using another SB account to transfer the amount spent on credit card , you still have to pay the credit card bill at the EOM and this money you transferred will not earn interest(6-7%) until it remains in account for a year and if you have not paid your CC bill for a year it will be 40% interest on amount spent . so i don’t understand the concept of transferring amount from 1 account to another just to feel pain .

      instead don’t use credit card and if any local merchant is accepting the CC talk to owner and get the discount of the transaction cost of that CC or negotiate which will in turn educate them about CC business strategy which makes us to give extra hard earned money with no reason or to use services which eventually not required.

      1. The credit card (CC) bill must be paid each month without default.

        When we use CC, no cash-out happens at that moment of time. Hence people tend to overspent through CC. Why? because their bank-balance does not change even if CC has already been used extensively. Moreover, even the total amount got spent on CC is also visible only after the bill is generated.

        Regular transferring funds to another account will take care of the “no cash-out” condition.

  3. Thank you very much for the article. Thankfully I don’t have any credit cards yet. I am currently happy with cash and debit cards. Do visit my website and read my articles.

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