eNchant Wealth Hub

Is debt good or bad? How to judge a loan or a credit card

By Godwyn Crosse
Founder, Enchant Wealth Hub | Personal Finance Educator & Mentor

"I earn well, but I cannot get myself to save or invest."

Sometimes the reason is not spending but repayments. An EMI (equated monthly instalment: the fixed amount you repay on a loan each month) here, a card bill there, and by the time they are paid there is little left. If that sounds familiar, where your salary goes is worth a look too.

The useful question is not whether debt is good or bad. It is how to judge each loan or card you have, or are thinking of taking.

The short answer

Debt is not good or bad by itself. The same loan can help one person and hurt another. What matters is what it pays for, what it really costs, whether you can repay it comfortably, and what happens if something goes wrong.

Four questions to ask about any borrowing

1. What does it pay for? Borrowing for something that is likely to last longer than the repayments, such as a home you live in or an education that improves your earnings, is different from borrowing for something used up quickly, such as a holiday or a gadget. Purpose alone does not make a loan sensible, but it is the first question.

2. What does it really cost? The interest rate is only part of the cost. Processing fees and other charges add to it, so comparing two loans by interest rate alone can mislead you.

3. Can you repay it comfortably? Repayment capacity means whether the EMI fits into your in-hand pay after your essential costs, your other repayments and your regular saving, including your emergency fund. If an EMI only fits when nothing goes wrong, it does not really fit.

4. What could go wrong? Ask what happens if your income stops for a few months, if the interest rate changes, or if other repayments build up. A secured loan, such as a home loan, is backed by an asset the lender can claim if you do not repay. An unsecured loan, such as a personal loan or a credit card balance, has no asset behind it.

Godwyn's view is that some borrowing, such as a home loan or an education loan, can be sensible when it is used wisely. The four questions are how you check whether a particular loan is one of those.

Reading the real cost of a loan

For a loan you repay in instalments, such as a personal, home or education loan, taken on or after 1 October 2024 from a bank or other lender regulated by the Reserve Bank of India (RBI), the lender must give you a Key Facts Statement before you sign. This is a short summary of the loan in a standard format and simple language.

It includes the Annual Percentage Rate (APR): the yearly cost of the loan, including the interest rate and all the other charges. Because it includes the charges, the APR lets you compare loans more fairly than the interest rate alone. The lender must also explain the Key Facts Statement to you, so ask about anything you do not understand before you sign.

Credit cards are not covered by this rule. Their charges are set out in the card's own terms.

Using a credit card versus carrying a balance

Using a credit card and borrowing on it are not the same thing.

When you use a card, you spend now and receive a bill later. The time from a purchase to the due date is called the interest-free period. You keep that benefit only if you pay the full bill on time and nothing from the previous statement is left unpaid; then you pay no interest on those purchases.

Carrying a balance means paying less than the full bill. The unpaid part is borrowing, and you are charged interest on it. RBI's rules also say the interest-free period is suspended while any part of the previous month's bill is unpaid, so new purchases can start costing interest too.

Your bill also shows a minimum amount due. This is the least you must pay for the bill not to be treated as overdue. It is not what you owe, and whatever you leave unpaid keeps costing interest.

So the same card can be a convenient way to pay or an expensive loan. The difference is how you pay the bill.

Why paying only the minimum takes so long: a worked example

Hypothetical example, simple numbers, not a real card or a prediction: imagine a credit card balance of ₹50,000. Assume a finance charge of 2% a month on the unpaid balance, which is the rate RBI uses in the example in its card rules; the rate on a real card can be different and is shown in its terms. Assume no new spending, and leave out GST and other charges.

Each month in the example, interest is worked out on that month's opening balance, then the month's payment is made. In the first month, interest is 2% of ₹50,000, which is ₹1,000. The payment is ₹2,500 in both payment cases below, which leaves ₹48,500: ₹50,000 plus ₹1,000 interest, less the ₹2,500 payment.

How the bill is paid Months to clear ₹50,000 Total interest
Full bill paid by the due date Cleared at once ₹0
A fixed ₹2,500 every month 26 About ₹14,494
5% of that month's opening balance, never less than ₹500 79 (about six years and seven months) About ₹29,565

The 5% rule is an assumption made for this example. It is not how any particular card works out its minimum amount due: each card issuer sets its own, and it is shown on your statement. RBI's rules require it to be set so that unpaid interest does not make the balance grow.

What the example shows is the pattern RBI requires card issuers to warn about on every statement: making only the minimum payment every month stretches repayment over months or years, with compounded interest on what is left.

When a card works well, and when it becomes costly

Godwyn's view is that a credit card is a tool to handle with care. It can be useful for things like international online payments, building a credit history and genuine emergencies, as long as the full bill is paid every month. Carrying a balance from month to month increases the interest you pay and can make repayment difficult.

An emergency fund helps here: a surprise cost does not have to go on the card in the first place.

Your credit report

Your repayment record on loans and cards is held by credit information companies, which also work out a credit score from it. RBI requires each credit information company to give you one free full credit report, including your credit score, once every calendar year. RBI also requires these companies to show their credit scores on a common scale from 300 to 900, so the scores are easier to compare. That scale applies to their scores; it does not describe every way a lender may assess an application.

Looking at your report once a year lets you see your record the way a lender would, and spot anything that looks wrong.

If repayments already feel heavy

If your EMIs and card bills already take most of your in-hand pay, or you are missing payments, start by listing every loan and card: what you owe, the interest rate and the monthly payment. Then speak to your lender or a credit counsellor before it gets harder. For a wider view of the order of money decisions, see where to start with your money.

When to get professional help

This guide is general education about borrowing. It is not a recommendation of any lender, loan or credit card, and it is not personal financial advice.

Sources

Last reviewed: 16 October 2026.