Don’t Pay Only The Credit Card Minimum Amount Due: Here’s Why!

There are times when you tend to make additional purchases than actually required because we have a credit card to depend on. As a result, when the credit card bill comes in, it becomes difficult to repay the amount as the expenses that you made might have exceeded the money that you earn.

To your rescue, banks offer the option of ‘minimum payment due’, which means that you can pay a part of your total outstanding bill instead of paying the whole amount at once. This partial amount that must mandatorily be paid is termed as ‘Minimum Amount Due’. In situations where users pay only the minimum amount, the interest is charged only on the remaining balance.

However, irrespective of all these benefits, it is still recommended that you pay the entire bill at once. You’d wonder, why. Read the blog to get your answers!

What is Minimum Payment Due- The Benefits

‘Minimum Payment Due’ basically refers to the small fraction of the total outstanding bill amount that you must mandatorily pay to the bank in case you are not able to pay the entire bill amount. Explained below are a few features-

  • It is the amount that users must pay mandatorily to the credit card company within the billing cycle so as to keep their credit account active
  • Paying the minimum amount due ensures that the user will have to pay only the interest as and when required without any additional late fee charges
  • If a user fails to make credit card bill payments on time for a regular time period, he/she will be reported to the credit bureaus for his/her irregular credit repayment behaviour. However, if the user has managed to pay at least his minimum dues in time, he/she will not be reported to the credit bureaus
  • The credit score gets directly affected by the user’s credit card repayment behaviour. Not being able to pay the credit card balances in time will affect the credit score adversely. However, if the user has made at least minimum due payments within the due date, then his/her credit score will not be affected to a great extent

How is the Minimum Amount Due Calculated?

Generally, the minimum amount due is fixed at 5% of the total outstanding balance as calculated on the date when the credit card statement is issued. However, there are a few cases where the following charges might also get added to the user’s minimum amount due-

  • If a user decides to convert his/her purchases to EMIs, the interest amount will be added to the minimum amount due
  • If there is any unpaid minimum balance from the previous month’s billing cycle

Are there any Drawbacks of Paying Only the Minimum Amount Due?

While it is better for credit card holders to pay the minimum amount due but it should only happen when it is not possible to pay the entire outstanding balance. Paying the entire outstanding balance is one the best practices that you should follow and here’s why-

  • If you pay the entire balance before the due date, you can easily avoid the benefit of an interest-free credit period for up to two months. On top of this, you can also get additional time period of up to 3 weeks from the date of issue of your credit card statement to clear your outstanding balances
  • Having paid only the minimum amount due will not grant you any interest-free credit period. However, if you have paid your credit card outstanding amount in full, you will get an interest-free credit period from your bank. On the other hand, if you pay only your minimum dues, you will have to pay additional interest on the outstanding balance from the date of purchase
  • It is also important to note that if you settle only your minimum dues for a few months consecutively, the interest on the outstanding balance will be accumulated over the period of time

What will Happen if You Pay Only Your Minimum Amount Due for a Long Period of Time?

It is indeed possible that you pay only your minimum amount due for a long period of time. However, it is not advised that you do so. Listed below are some of the consequences of doing so-

  • Pay high interest charges on the outstanding amount
  • No interest-free credit period
  • Credit limit will be reduced to the amount that you haven’t repaid

Bonus Read: Learn how to increase your credit limit!

Dos & Don’ts to Have a State Credit Repayment Status

Whether it is your first credit card or the last one, it is important that you maintain a healthy credit usage and repayment status. To help you do that, here’s a list of various things that you should and shouldn’t do to stay away from landing into debts-

DOsDON’Ts
Effective usage can improve your credit scoreImproper usage can hurt your credit score badly
Keep your credit card safe with yourselfLosing your credit card may lead to misuse and fraudulent transactions
Use your credit card to meet emergency expensesCredit cards offer borrowed money; so do NOT overspend
Buy the card of your need and use it effectively to earn reward pointsKeep a check on all the credit card offers such as the rewards and discounts on your card; do NOT ignore them
Pay your bills on timeLate payment of bills will lead to high interest charges

To Conclude:

It is important to note that the lesser amount of outstanding balance you pay, the more will be the interest that you will have to pay. While it is okay to pay only the minimum amount due when you don’t have enough funds to clear your credit card bills, it works fine only for the short term. Additionally, if you find yourself landing in such a situation quite frequently, it is time that you revisit your budget and plan your expenses beforehand. In case, your credit card overdues become too much to handle, you may borrow a personal loan or look out for balance transfer to the rescue.

FAQs
What is the minimum payment due?
‘Minimum Payment Due’ basically refers to the small fraction of the total outstanding bill amount that you must mandatorily pay to the bank in case you are not able to pay the entire bill amount.
What are the benefits of paying only the minimum amount due?
Paying the minimum amount due ensures that the user will have to pay only the interest as and when required without any additional late fee charges. Also, if a user has made at least minimum due payments within the due date, then his/her credit score will not be affected to a great extent.
How is the minimum payment due amount calculated?
The minimum amount due is fixed at 5% of the total outstanding balance as calculated on the date when the credit card statement is issued.
What will happen if I pay only the minimum amount due for a long time?
If you pay only the minimum amount due for a long time, you will have to pay high interest charges on the outstanding amount. You won’t get any interest-free credit period. Along with this, your credit limit will also be reduced to the amount that you haven’t repaid.
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