From the last few years usage of Credit Cards are increased day by day in India. Credit Cards attract more consumers swiftly because with the usage of Credit Cards cardholders avails many offers such as online discounts, cash backs, and rewards points along with the internet-free credit period.
However, with high spending on credit cards, comes the risk of overspending. Most people spending credit cards beyond their paying capacity. This way many cardholders pay up only the minimum amount due, which lands them into a debt trap.
What is the minimum amount of balance?
Whenever you received your credit card bill, then you see that there are two payment options shown in your bill payments. When you receive a credit card bill, you have the option to pay two amounts. In which one is the total outstanding amount and the other is the minimum amount due.
When you have not paid off your credit card bill before, or on the due date, a minimum amount is shown that you can pay instead of the full amount.
The minimum due amount is only a small portion of the principal outstanding amount due every month. This minimum amount can be paid before the payment due date to maintain your card account. But this has a limited benefit.
Note: Paying only the minimum due amount doesn’t waive off the credit card charges, instead of it only doesn’t attract the late fees charged on the credit card.
The calculation of the minimum amount due is 5% of the total outstanding balance. If you have bought something on EMI via your credit card, the percentage of the minimum amount due can be higher.
In also addition, if you have spent more than your credit limit, or have not cleared your previous month’s dues then the minimum amount balance can also be higher.
Note that paying up the minimum amount due doesn’t waive off the interest on the outstanding bill amount.
Most credit cards charge a monthly interest rate between 3% and 4% on the outstanding amount, which is an interest rate of between 35% to 40% per annum.
If you don’t pay the minimum due balance, along with the interest, additional late payment fees, and other charges can also be levied depending on the card provider.
The late payment fee is usually a flat fee which can be anything between ₹ 100 to ₹ 1,000, depending on the credit card provider, and the amount due. In also addition, your credit card could get suspended once the dues cross the credit limit allowed on your card. Not paying even the minimum amount due can highly affect your credit score, which will make it hard for you to get a loan in the future.
Where one side there are many limitations in the minimum amount dues, there is also another side some benefits in the minimum amount dues.
The benefit of paying the minimum amount
- By paying the minimum amount, you can keep your credit active. It means that you can continue to use the card for the total available credit limit, except the amount converted to EMI.
- In some cases, the bank will not classify your payment as a ‘default’ in the credit record if you pay the minimum amount due. It will ensure that your credit score is secure.