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Credit cards have become an essential financial tool for many in India. They offer convenience and flexibility, but also come with responsibilities. One of the most important concepts to understand is the minimum due on credit cards. Knowing what it means, how it is calculated, and its impact on your finances can help you make informed decisions and maintain good credit health.
The minimum due on a credit card is the least amount you must pay by the due date to avoid penalties. It is not the total outstanding balance but a fraction of it. This payment ensures you avoid late fees and keeps your card active. However, paying only the minimum does not clear your entire debt. The remaining balance continues to accrue interest, increasing your repayment burden over time.
Credit card issuers calculate the minimum due as a percentage of your total outstanding amount. In India, this is usually around 5% of the total bill. The figure can also include any unpaid minimum from the previous month, interest charges, and fees. The exact percentage may vary depending on the issuer’s policy and your card’s terms.
The calculation of the minimum due involves several components. The most common method is to take a fixed percentage of your total outstanding balance. For example, if your total due is ₹20,000 and the minimum due rate is 5%, your minimum due would be ₹1,000.
Other factors can influence this amount:
Interest Charges: If you have not paid your previous bill in full, interest is added to your new statement.
Late Payment Fees: Any unpaid minimum from the last cycle is added to the current minimum due.
EMI Transactions: If you have converted purchases into EMIs, the monthly EMI is included in your minimum due.
Over-limit Fees: If you exceed your credit limit, the over-limit amount may be added.
Credit card pay minimum due amounts are clearly mentioned in your monthly statement. It is crucial to read your statement carefully to understand all components included in the calculation.
Paying only the minimum due in credit card bills can seem convenient, but it has significant long-term consequences. If you consistently pay just the minimum, the remaining balance attracts interest. This interest is usually compounded monthly, causing your debt to grow faster.
Here are the key impacts:
Interest Accumulation: You will be charged interest on the unpaid balance, which can be as high as 30-40% per annum in India.
Debt Trap: Your outstanding amount reduces very slowly, increasing the risk of falling into a debt trap.
Credit Score Impact: Regularly paying only the minimum may not directly lower your CIBIL score, but a high credit utilisation ratio and increasing debt can have a negative effect.
Loss of Interest-Free Period: If you do not pay your bill in full, you lose the interest-free period on new purchases, making all new transactions immediately chargeable.
Increased Repayment Period: It can take years to clear your debt if you continue to pay only the minimum due.
If you only pay the minimum amount due on your credit card, you avoid late payment fees but continue to accumulate interest on the remaining balance. Over time, this can lead to a substantial debt burden.
It is always advisable to pay more than the minimum due in credit card bills. Paying only the minimum keeps your account active but does not reduce your principal debt significantly. By paying the full outstanding amount or as much as possible, you save on interest charges and clear your debt faster.
Benefits of paying more than the minimum due include:
Faster Debt Reduction: Your outstanding balance decreases more quickly, reducing the total interest paid.
Improved Credit Score: Lower balances and timely payments reflect positively on your credit report.
Restored Interest-Free Period: Paying in full reinstates your interest-free period for new purchases.
Financial Discipline: Regularly clearing your dues helps you manage your finances better and avoid unnecessary charges.
If you are unable to pay the full amount, try to pay as much above the minimum due as possible. This approach helps you avoid the pitfalls of long-term debt.
Managing your credit card payments effectively can help you avoid relying on minimum due payments. Here are some practical tips for Indian cardholders:
Budgeting: Track your monthly expenses and set aside funds for your credit card bill.
Automatic Payments: Set up auto-debit for the full amount due or a fixed amount higher than the minimum due.
Spending Limits: Use your credit card within your repayment capacity to avoid high outstanding balances.
Statement Review: Check your monthly statement for errors, unauthorised charges, and the due date.
Emergency Fund: Maintain a small savings buffer to cover unexpected expenses and avoid missing payments.
Timely Reminders: Set reminders for your payment due date to avoid late fees.
By following these steps, you can avoid the cycle of paying only the minimum due and keep your finances healthy.
There are several misconceptions about the minimum due in credit card payments. Let’s address some common myths:
Myth 1: Paying the minimum due is enough to avoid all penalties.
Fact: While you avoid late payment fees, you still pay interest on the remaining balance.
Myth 2: Paying the minimum due improves your credit score.
Fact: Only paying the minimum does not boost your score. High outstanding balances can negatively affect your credit health.
Myth 3: Minimum due is a fixed amount every month.
Fact: The minimum due changes based on your spending, outstanding balance, and fees.
Myth 4: Paying the minimum due means you are managing your credit well.
Fact: Financial discipline involves clearing your dues in full whenever possible.
Understanding the minimum due in credit card statements is vital for responsible credit usage. Always aim to pay more than the minimum due to maintain financial health and avoid unnecessary debt. By managing your payments wisely, you can enjoy the benefits of credit cards without falling into common traps.
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Posted on 16 May
Roshani Ballal
Academy by Bajaj Markets
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