Who's in Control: You or Your Credit Card?

Over the last couple of years, financial influencers and credit card experts have been telling us how to squeeze the maximum out of our credit cards. Somewhere along the way, that pushed a lot of people toward using them far more than before.

Credit card spending has gone up, especially among Gen Z and some millennials. Many of them are excited and a bit surprised by the credit available to them. Money that they once had to think hard about spending is now just there, ready to swipe.

The milestone trap

Banks and card issuers set milestones: spend this much and you unlock a certain card or a certain benefit. So people now look at their spending through the lens of hitting that milestone. They spend a little more and make a few extra purchases just to get there.

What they rarely stop to ask is, if I didn't have this card, would I be buying this at all? Would I be paying for it straight from my bank account?

Let's be real. Whatever you spend on your card, you have to pay back. And when you're justifying purchases with "I'm getting benefits out of this" or "I would have bought it anyway," you're often spending money you don't have or never had in the first place. Impulsive spending goes up simply because the money feels like it's sitting right there.

How banks actually make money from your card

Before going further, it helps to know how card issuers earn. There are four main ways.

1. Merchant fees. When you pay a merchant by card, they don't receive the full amount. A fee of roughly 1.5% to 3% is deducted. That fee is shared between the issuing bank and the network (Visa, Mastercard, RuPay and so on). The bigger share goes to the issuer, and a smaller part stays with the network. So every time you swipe, the bank earns something.

2. Interest. This is probably their biggest profit driver. Customers who carry a balance and pay very high interest on it are the biggest source of income for card companies.

3. Fees. Joining fees, late payment fees, cash advance fees, over-limit fees, foreign exchange markups. It all adds up.

4. Partnerships and co-branding. Co-branded cards tied to grocery chains, airlines or hotels earn the bank money too. The partner pays a fee for access to the card company's loyal, high-spending customers.

How this shapes the way you spend

Once you know how banks earn, you can see why certain things happen.

• Rising thresholds. When a bank raises your spending target for a benefit, it's maximising merchant fees. The more you spend, the more they earn.

• Generous credit limits. You may be given a limit much higher than you need, or than you're technically eligible for. You spend more, can't pay the full amount when the bill arrives, and the balance rolls over. That's revolving credit, at 30% to 35% a year, sometimes even 40%. You spent thinking the money was there, and when it's time to pay, it isn't. You revolve and cry.

• Fees that rely on what you don't know. You're allowed to go over your limit, then charged for it. You're allowed to withdraw cash, and only later find out about the cash advance fee. Sometimes banks simply cash in on users not knowing the rules.

The bottom line is that the bank nudges you to do things you might not otherwise do: spend more, travel more, just to make sure you qualify for the maximum benefit from your card.

The pause that changes everything

So what can you do? Stop and ask yourself whether you'd actually buy this if you didn't have a credit card.

Without a card, buying a new phone would take some thinking. Do I need it? Can I keep using my current one? If I spend this money, how will I manage until the end of the month? You'd weigh the pros and cons.

With a card, that gap disappears. The money feels like it's lying there, so it goes out immediately, without giving yourself time to think. I'm not saying anyone does this deliberately. But easy access quietly clouds your decision-making. You feel you have the money, and you make the impulsive call.

So even when you're using a card, make it a point to pause. Take two or three days. If an ad pops up on Instagram or Facebook, step back. Bookmark it if you like, but don't buy in the moment. Then sort it into a want or a need.

If it's a need, like a medical emergency or something that must be done right away, then yes, that's exactly why your credit limit is there. But if it's a want, think harder. You already have a phone. You just want to upgrade because a new one has come out.

"The best phone we've ever made"

Look at any phone launch event. The line is always the same: the best phone we've ever made, the best chip, the best screen, the best UI, the best battery life. It pushes you to believe that this is the best, right now, when just yesterday the phone in your hand was the best.

Things don't change overnight. It's okay to not have the best thing in the world in your hands every single time. Weigh your pros and cons, look at it from a different angle, and then decide.

Why this matters for your future

The reason I'm bringing this up is simple. The more you spend, and the more you have to repay, the less you have to invest. Every impulsive purchase chips away at your investing power.

Let's put numbers on it. Say you had invested ₹10,000 every month instead of spending it on things you didn't really need, and that money grew at 12% a year over 20 years.

Amount total you put in (₹10,000 × 240 months)

₹24,00,000 What it grows to in 20 years about ₹99.9 lakh

That's almost ₹1 crore, from a ₹10,000 monthly habit. Even at a more modest 10% a year, it would still grow to about ₹76.6 lakh.

Now look at a single purchase. One ₹10,000 invested today at 12% becomes about ₹96,000 in 20 years. That's nearly 10 times the money, from just one impulsive buy that didn't happen.

(These numbers are only an illustration. They assume a steady return, and actual returns will vary and are not guaranteed.)

So a ₹10,000 impulse purchase is rarely just ₹10,000. Repeated month after month, it can become a big part of your retirement corpus. All those small decisions, the "I only live once, I want this" ones, add up.

I'm not saying don't enjoy life. The joy of new things and new gadgets is real. We just need a balance between that enjoyment and how we want to live later in life.

And if you pause, weigh it up, and still feel "yes, this is right for me," go ahead and buy it. Just take that pause first.

You'll notice something once you start. A lot of purchases will get delayed, put on hold, or dropped altogether, because your conscious mind won't let the impulse win.

Final thoughts

Nothing against credit cards. They're great. I use them, and I think everyone should. But keep them in your control. Don't let them control you, and don't let the banks and their rewards decide what you buy, because those decisions directly affect your investments.

Thank you for reading.