The attractive cashback offers, discounts, rewards, and the ease of making cashless transactions on borrowed funds make credit card a sought-after payment option. However, to continue to enjoy these benefits, clearing your credit card dues on time is a must! You can find the total outstanding amount in the credit card account statement, which is generated at the end of every billing cycle. Ideally, you are required to pay the entire outstanding amount before or on the payment due date. However, in the event that you end up overspending and do not have the funds to clear the bill in full, the bank offers you the option to pay only the minimum amount due.
The minimum amount due on a credit card bill means the minimum amount you must pay within the payment due date to keep your credit card account active. This amount is a small portion, usually 5 per cent, of the current month’s outstanding credit card bill. However, if you have EMIs to pay, pending bills to clear, etc., the credit card minimum amount due can be higher.
Clearing only the minimum payment due on a credit card is an extremely convenient option when you cannot pay up in full. However, if you fail to clear even the minimum due amount, the bank charges you a late payment fee. This fee is over and above the interest charges levied on the outstanding balance. Also, if this becomes a recurring pattern, the bank may decide to temporarily block your card. This can severely impact your credit score and overall creditworthiness and make it difficult for you to avail any form of credit in the future.
It is only normal for you to wonder, “What if I pay only the minimum due on the credit card every time the bill is generated?” Sadly, that is not an option as you can soon find yourself in a debt trap. How so?
Well, if you spend more than your capacity to pay, the minimum amount due will only form a small part of this due amount. The larger part of the outstanding dues will remain unpaid and be carried forward in the next billing cycle. So, if you make it a habit of paying only the minimum amount due, your outstanding dues for each month would keep adding and the total bill would soon be too large for you to repay.
On top of that, there is the element of interest that is levied on the pending bill amount. While the monthly interest rate of 3-4 per cent is bearable in the short run, the annual interest rate of 35-45 percent may put a strain on your finances. Also, if you pay only the minimum amount due, the interest-free period on all new purchases will be cancelled and your new purchases will start accruing interest from the date of transaction.
Therefore, you should never get into the habit of paying only the minimum amount due on your credit card bill and should only do it when you have no other option. Also, as a healthy practice, to avoid defaults, you should never spend more than half, i.e. 50%, of your credit card limit in a billing month. If you wish to apply for a credit card, Finserv MARKETS is the best place for you!
Minimum amount due (MAD) refers to the minimum amount from the total credit card bill that you must pay before the payment due date. It is a small percentage, usually 5 percent, of the total amount spent.
If you pay only the minimum amount due on your card, you avoid the late payment fine; however, the interest charges continue to accrue. Also, the outstanding dues from the previous months would get added to the next month’s credit card bill.
Paying only the minimum amount due on a credit card for a long period of time can land you in a debt trap. The interest-free period on your new purchases would be cancelled and the outstanding dues for past months would keep accruing interest. This would soon multiply the due amount beyond your capacity to repay while also harming your credit score.