Introduction
If you use a credit card, then you must have seen a small line below the bill which says –
“Minimum Amount Due”. It sounds very normal and simple, but if you do not understand this line
i.e. minimum due properly, then you can get caught in the trap of interest, which never ends.
What’s the Minimum Due Amount?
What can happen by paying it and what happens,
And when and how should you handle it.
Minimum Amount Due – What is it?
Minimum amount due is the minimum amount that you must pay by the due date of your credit card bill, so that: You are not charged late payment fees and charges
Your credit score remains safe But this is not the payment of the entire bill, it is just a small part of the total due.
Real-Life Example:
Description Amount
Total Bill ₹10,000
Minimum Amount Due ₹1,000
Remaining amount ₹9,000
Now let us understand this
If you pay only the minimum amount due of ₹1,000, then ₹9,000 will attract monthly interest
(3–4%) and yearly interest (36-48%). And next month your bill will increase further due to which
you will have to face a lot of problems.
Paying the minimum amount due – is it right or wrong?
What to do in this situation?
If there is less money and you are not able to clear the total due, then only this step should be taken and only the minimum amount due should be paid because there will be no late fine or any other charges, therefore this is a temporary option.
If possible, always try to pay the entire total due bill because clearing the total due has a good impact on our credit score. We can also convert the total due into the EMI option. What will happen with this is that it will have a good impact on our credit score. If we pay every EMI on time then there will be no pressure on us to pay the total due.
Minimum amount due only saves from default, but not from interest.
What is the risk of paying only the minimum dues?
High interest is charged (36–48% yearly)
The risk of getting caught in the debt trap always increases
Credit utilization shows more
Financial stress is created which can keep you mentally disturbed
Best Practices to Manage Credit Card Payment:
1. Always try to pay the entire outstanding amount. Try to pay the total outstanding amount no matter what.
2. Make the payment before the due date (or set auto-pay)
3. Try to keep all your expenses within your monthly budget.
4. If there is any problem, ask the bank for EMI or deferment option and then the bank will explain everything to you clearly.
In India, how is the Minimum Due Amount calculated?
In India, the minimum due amount is calculated on the below mentioned items:
1.% of Outstanding Balance In general, its about 5% of the outstanding balance.
2. Interest and Fees. Such fees and interests that may be incurred in a billing cycle, payable on or before the due date.
3.Fixed Amount. Some banks have a fixed amount (eg ₹ 500), irrespective of the calculated percentage mentioned below.
Example:
Outstanding Balance: ₹20,000
Required Minimum Payment Percentage: 5%
Interest and Fees: ₹300
Minimum Due Amount = (20,000 x 5%) + 300 = ₹1,300
Advantages of Paying the Minimum Due Amount*
1. No Late Fees:
By paying the minimum due amount, one can avoid late payment charges that range from ₹500 to ₹1,000 or even more for each occurrence, depending on the bank.
2. Maintains Your Credit Score:
As long as you pay at least the minimum due amount on time each month, you maintain a clean payment history, which is a key factor in your CIBIL or credit score.
3. Financial Flexibility:
By paying the minimum due amount in a crunch will ensure you will have your expense budget still intact and also not get a default entry on your credit card.
4. Account Activity:
Paying the minimum amount due on time keeps your credit card account active. A long-standing credit card account helps your long-term credit history.
Disadvantages of Minimum Due Payments
1. Huge Interest Rates:
The major downside is the extremely high interest on the outstanding amount. Credit cards in India generally charge in the range of 24–48 percent interest per annum which can multiply the amount of debt very quickly.
2. Debt Trap:
Payment of the minimum due amount increases the time to pay off the debt, and you are trapped in a debt trap that is difficult to escape.
3. Negative Impact on Credit Utilization:
Even if you pay the minimum due amount on time, if you have a high balance relative to your credit limit (high credit utilization), it negatively affects your credit score.
4. Limited Financial Progress:
Explanation: By paying the minimum due, one is not paying off the debt, hence not progressing towards one’s financial goals such as saving
India Latest News and Updates, 13 October 2023
1. RBI Guidelines:
RBI has introduced some new rules regarding the transparency of the credit card bill. The banks will now have to show the interest payable amount and the duration for which only the minimum paid amount would settle the loan amount in full.
2. Digital Payment Tools:
Indian banks are now wooing credit cardholders with mobile apps and SMS reminders to help them visualize their spending and pay on time, to avoid falling into the trap of only paying the minimum due amount each month.
3. Financial Literacy Initiatives:
In contrast, Indian banks have focused on educating their customers on effective use of credit cards, including giving awareness on consequences of payment of only minimum due amount.
When to Pay your Credit card, Explained in India
1. Pay More Than the Minimum:
Whenever you can, pay more than the minimum payment due so that you can pay down your balance faster and incur fewer interest charges.
2. Auto-Pay:
Automated payment feature that helps you not miss any payments.You can opt to pay only the minimum or a fixed amount above the minimum.
3. Track Your Spending:
Keep a close watch on your credit card spending to prevent building a balance that is hard to pay off.
4. Opt for Balance Transfers:
If you have a big balance, consider transferring it to a card with a lower interest rate or a 0% introductory APR offer.
5. Self Help if Needed:
If you are finding it hard to pay the amount on your credit card, consider consulting a financial advisor or taking debt consolidation services.
FAQs:
Q. Does paying minimum dues avoid a penalty?
A. Yes, you avoid a penalty, but interest is still charged and that too a lot of interest.
Q. Does it affect my credit score if I pay only the minimum dues?
A. If you do this regularly, then yes, your credit score can fall, and it can have a very negative impact on your credit score.
Q. How do I check which part of my bill interest will be charged?
A. There is an “interest charged” section in your credit card statement. Everything is clearly written there from where you get all the information.
My opinion
I believe that we should always clear the total outstanding due because there are many benefits of making total payment, the credit score increases, the credit card limit also increases and there are many other benefits but if due to any problem we select the option of paying the minimum due then we should find out as quickly as possible the total due and whatever interest we have should be cleared as quickly as possible, otherwise this minimum due will not take us on a good path where you will only be stressed and you will get stuck in your own trap from which it becomes very difficult to get out, so if you listen to me always clear your total outstanding bills.
Conclusion:
"Minimum amount due" is an option that saves you from default, but if you make it a habit, it will trap you in such a way that you will have to face a lot of difficulties in getting out of this trap. If you want to be financially smart and free, always clear your entire bill, take advantage of interest-free grace period, and keep control over your expenses because if you spend more than your monthly expenses, you can get caught in this dangerous trap, so always keep control over your expenses.
Call to Action:
If you find this information useful, do share it with your friends who pay this minimum dues or who are thinking of paying this minimum dues and tell them how dangerous it can be.
And if you need help on a specific credit card or finance topic, do comment below or visit our [Contact Page]. Or if you need any help from us, you can choose our consultant plan in which you will be fully helped, and we will be responsible for solving your problem.
Thank you for reading the full blog article. On which topic do you want the next blog article? Please tell us by commenting below
