Should you link your credit card with UPI? Here are the pros and cons

Unified Payments Interface (UPI) has made life easier for people by simplifying the process of digital payments and fund transfers. Until now, you could only transfer funds to your UPI from a debit card or a savings bank account. However, the RBI has now allowed the linking of credit cards with UPI. This move, however, has pros and cons.

Firstly, one of the critical advantages of linking a credit card with UPI is its convenience. With UPI, users can make transactions 24/7 from anywhere, eliminating the need to visit banks and stand in long queues. UPI supports various types of transactions, including peer-to-peer collection requests, payments to merchants, and utility bill payments, which can be done easily using a credit card linked to it.

Adhil Shetty, CEO of BankBazaar.com, said, “Credit card-UPI linking will definitely add to the convenience of online payments. Earlier, the funds available via UPI were limited to what you could access from your savings account via net banking or your debit card. But now, users will have the flexibility to carry out UPI transactions up to the credit limit available on their linked credit card. Given the popularity of UPI, this integration can boost credit card usage and lead credit card companies to incentivise card usage with more lucrative reward programs and offers.”

Secondly, it becomes quicker to make transactions using a credit card linked to UPI than traditional methods, where you rely primarily on the card number and CVV.

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However, there are also some significant disadvantages linked to pairing your credit card with UPI. The primary disadvantage is linking your credit card with UPI increases the risk of overspending. The convenience of payments could lead to more impulse purchases and unnecessary spending, causing a possible surge in credit card debt.

Shetty said, “When one would restrict their spending via UPI as much as the funds from the linked savings bank account allowed, credit-card-UPI integration may lead to impulsive spending, especially considering the high credit limits usually offered with credit cards. Thus, users must make a budget and stick to it when using UPI for routine monthly transactions. If you have multiple credit cards, allocate a credit card to manage smaller expenses like groceries or utility bills. For big-ticket expenses, ensure a robust repayment plan to avoid debt accumulation. Routinely check your outstanding balances and reconcile your expenses.”

Finally, connectivity issues can result in failed transactions. In areas with poor internet connectivity, using UPI might prove to be challenging. This could potentially affect your ability to make timely credit card payments.

Thus, while linking your credit card with UPI simplifies transactions, it also carries potential risks. It's vital to be aware of these and approach digital payments cautiously to optimise the benefits while mitigating drawbacks.