Break-Even Spend on a Rs 2,000 Credit Card: What You Must Swipe to Beat the Fee

Hindustan Times has reported on a simple question. Is your credit card worth what it costs? The answer depends on the fees you pay, the rewards you earn and how you repay your bill.

A card is worth keeping only when the benefits you really use beat the total cost. That cost includes the annual fee, GST and any interest. You can check this in about ten minutes, once a year.

Key takeaways

• A card is worth keeping only if yearly benefits beat yearly costs.
• Interest on unpaid bills can wipe out months of rewards.
• Count only the perks you really use, not the ones in the brochure.
• If a card fails the test, ask for a fee waiver or switch.

How to judge a credit card's real cost

Every card has a price. The most visible part is the joining or annual fee. On top of that, you pay 18% GST on the fee. Then there are late fees, cash advance fees and forex markup on foreign spends.

The biggest cost is interest. Say you miss the full payment by the due date. Banks usually charge roughly 36% to 45% a year. That's about 3% to 3.75% a month. One missed full payment can erase rewards from several months.

Rewards are the other side of the scale. They come as points, cashback, air miles or lounge visits. Their value depends on how much you spend and where. Points are only worth what you can actually redeem them for.

What it means in rupees

Say a card has an annual fee of Rs 2,000. With 18% GST, you pay Rs 2,360. If you spend Rs 15,000 a month, that's Rs 1.8 lakh a year. At a 1% reward value, you earn Rs 1,800. You lose Rs 560.

Now say you spend Rs 30,000 a month on the same card, and the reward value is 2%. That's Rs 3.6 lakh a year and Rs 7,200 in rewards. After the fee, you're ahead by Rs 4,840.

Monthly spend	Yearly spend	Reward value	Fee with GST	Net result
Rs 10,000	Rs 1.2 lakh	Rs 1,200	Rs 2,360	Loss of Rs 1,160
Rs 15,000	Rs 1.8 lakh	Rs 1,800	Rs 2,360	Loss of Rs 560
Rs 30,000	Rs 3.6 lakh	Rs 7,200	Rs 2,360	Gain of Rs 4,840

These numbers are only examples. Your card's fee and reward rate will differ. The method stays the same, though.

Who is affected

Almost anyone with a card should do this check. Some groups should look a little closer.

• People who pay a high annual fee but spend little.
• People who carry a balance and pay interest.
• People who hold three or four cards and use none of them well.
• First-time cardholders who took a card for a free gift.

What to do now

Pull out your last 12 months of statements. Then follow these steps:

1. Add up all fees, GST, late charges and interest you paid.
2. Add the cashback and the value of points you really used.
3. Subtract your costs from your benefits.
4. If the result is negative, call the bank and ask for a fee waiver.
5. If they say no, move to a no-fee card or close the extra one.

Pay off any dues before you close a card. Closing an old card can slightly shorten your credit history. That matters little if you have other cards.

If you're short on cash and thinking of a loan, compare the cost first. Try our EMI calculator and read our personal loan guides. You can also see current interest rate tables. More stories are in the news hub.

Frequently asked questions

How do I know if my credit card is worth the annual fee?

Add your yearly rewards and perks you really use. Subtract the fee plus 18% GST. If the number is positive, the card is paying its way.

Can I get my annual fee waived?

Often, yes. Many banks waive the fee if you hit a yearly spend target. You can also call and ask, especially if you've been a good customer.

Is a free credit card always better?

Not always. A free card with weak rewards can earn less than a paid card used well. It depends on how much you spend and what perks you use.