Is Paying Minimum Due on your Credit Card Enough?


Getting a credit card could be easy, but repaying its bill becomes troublesome. Once people get the credit card, they start to use it for things they could have managed to buy from cash or a debit card. In the end, they accrue too much debt and it becomes extremely difficult to pay off. There are times when you are unable to pay your bills on time due to cash crunch or unexpected circumstances. At such times, people would rather pay the minimum amount due. Even though the minimum amount due is made for such situations, it is not a great solution. It might sound like a good option, but it is not.

How does it work?

If you check your credit card statement, you would realize that it includes two amounts. One is a total outstanding bill and the other one is minimum due. The idea of paying minimum amount due can be tempting at times, but it is not the best one. To clear the basics, minimum due is just a small part of your total due. Generally, it is 3%-5% of your total due, the percentage usually depends on the bank. Every time you pay a minimum due, you end up with more interest.

Let us say you have a total bill of INR 20,000 and you have to pay a minimum due of 5% which is INR 1,000. When you pay INR 1,000, you will avoid the late payment, but you will end up paying an interest charge in the next billing cycle. The interest rate could be 2% to 3.5% on the unpaid balance which is the revolving credit.

So, if you are regularly making minimum payment on the outstanding balance of INR 20,000 at the rate of 2%,you will end up paying INR 25,797 in 26 months. In a nutshell, you will be spending more than 2 years to pay the revolving credit with an interest of INR 5,797. Hence, it is advisable to pay your credit card dues in full every month.

Now the question is why is it not enough to just pay the minimum due?

Experts always suggest paying the complete outstanding amount every month. Apart from accruing interest on the unpaid balance, only paying minimum due also harms your credit score. But how?

Credit score depends on five factors. One of those factors is the Credit Utilization Ratio. Credit utilization ratio is currently used revolving credit divided by the currently available revolving credit. Using more than 30% of the revolving credit has a high negative impact on your credit score. Paying minimum due could not only lead to an increase in revolving credit, but also lands you in debt trap.

In conclusion, paying minimum due on your credit card is not enough. If you are already in debt trap and you are falling behind on your credit card payments, you can explore your options to manage your debts. Our team of trained debt counselors will guide you and advise you to resolve your debts. You can reach out to us at 0124-6663666 or visit our website to know more.

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