Don’t make it a habit of turning all your credit card purchases into EMIs

Dubai: Swiping your credit card and converting purchases into equated monthly instalments (EMIs) might seem like a no-brainer—after all, why pay in one go when you can split it into smaller, “manageable” chunks?

But if you make this a habit, you could be setting yourself up for a financial trap that’s hard to escape. EMIs can be useful in certain scenarios, but they come with hidden costs and long-term consequences that could hurt your financial health. Let’s break it down.

Illusion of affordability

The biggest appeal of EMIs is the illusion that expensive purchases suddenly become “affordable.” But are they really? While the monthly payments may seem small, the total cost of ownership skyrockets due to interest charges and processing fees.

For example, a smartphone that costs Dh5,000 might seem more budget-friendly if converted into a 12-month EMI. But with a 20% annual interest rate, you could end up paying Dh5,500 or more. That’s Dh500 you could have saved or invested elsewhere!

Credit limit crunch

When you convert a credit card transaction into an EMI, your available credit limit reduces immediately by the purchase amount. This means less room for other spending, which can be risky in emergencies. Plus, if your credit utilisation ratio (the percentage of credit you use against your total limit) remains high, your credit score can take a hit.

Snowball effect of multiple EMIs

A one-off EMI may seem harmless, but if you keep converting purchases, you’ll soon find yourself juggling multiple EMIs each month. Before you know it, a significant portion of your income is tied up in fixed payments, leaving little room for savings or unexpected expenses. And if you miss a payment? Be prepared for late fees and penalty interest rates.

When does an EMI make sense?

Using EMIs isn’t always a bad idea. If you’re making a necessary big-ticket purchase—such as a home, education, or medical expenses—an EMI can help spread the cost without draining your savings. However, it should be a well-thought-out decision, not a spontaneous habit for lifestyle spending.

Smarter ways to manage your expenses

Final verdict?

EMIs are a useful financial tool when used wisely, but turning every purchase into one is a slippery slope. Instead of making impulsive buying decisions with deferred payments, focus on budgeting and disciplined spending. Remember: if you can’t afford to buy it outright today, maybe it’s worth waiting until you can!