What's the big deal you may ask? Let's check out why he wanted to convert them into EMIs. The normal reason is that he doesn't have enough money to pay for the expenditure that he is about to incur. Well, he's my age and I get that at our age there are certain expenses that we just can't avoid.
So I asked him what are the expenses that he usually converts into EMIs. Here's an illustrative list that we had a heated discussion-
1) Whey protein powder
2) Flight tickets
3) Consumer goods i.e. Cell phones, Television, Washing Machine etc.
4) Gifts
Now what is the one thing in common with these expenses? They're all discretionary. Since, the credit card company allows him to split his current expenditure and transfer it to subsequent months, my friend thinks that he is able to defray his expenditure eventually. This not just wrong, it's foolish. Why is that? Because no credit card company is going to give you a 'interest free' EMI. That's just not how these companies are going to work. To cut the long story short, there's no free lunch. He will be charged some kind of fees and/or a monthly interest rate to cover this up. Sometimes, the credit card company may have a deal with the retailer or the manufacturer to provide a discount to the customer. Here is where you might see messages like 'Interest Free EMIs'. From all the finance education that I have gathered, this just doesn't happen. There's a charge hidden somewhere that he has to pay.
Check out this article in the times of India that I found while doing research for this blog. http://timesofindia.indiatimes.com/business/india-business/RBI-bans-zero-interest-loans-on-EMI-to-credit-card-holders/articleshow/23065529.cms
What would have been the end result if I hadn't managed to convince him that converting purchases into EMIs are wrong? He would have overspent. And he would have gotten into the habit of purchasing more than he could afford to pay for (Credit cards allow you to live over and above your means for a while). Then he would ran up a bill that he couldn't afford to pay anymore. (Read Ramit Sethi's brilliant book I'll Teach You to be Rich to know more)
If my friend hadn't listened to me, he would have reached the conclusion that using a credit card is the worst thing that could have ever happened to him. Let's change that sentence. Using credit cards to fund an extravagant lifestyle when you don't have enough money to sustain it. Well credit cards are not really meant to be used that way. Ramit Sethi uses brilliant examples in his book I mentioned above.
The fault is with consumer loans. They bear exorbitant interest rates. And add to that the interest/charges recovered by the credit card companies. My friend finally understood his folly when i sat him down and explained the above process with a gun to his head (I was just yelling at him). Loans that are not productive or essential to fund a purchase don't make sense. They just end up burning a huge hole in our pockets. And remember, all your credit history gets recorded by the credit bureaus like CIBIL. In the future when you approach a bank or financial institution for a loan, he or she can see exactly credit behaviour. That is they can see that you have a habit of buying consumer goods using high interest bearing loans. This is seriously risky credit behaviour. Your credit card is also a loan, not an ATM.
