The credit card minimum payment amount due also includes any EMI payment conversions you may have opted for. If you have an unpaid balance from the previous credit card billing cycle or exceed your credit limit, that amount is also added to the credit card minimum due.
How does the minimum due on a credit card work?
The credit card minimum due is the smallest payment a cardholder can make to meet their monthly obligation. It's usually a percentage of the total outstanding balance or a fixed amount set by the credit card issuer. Paying only the minimum due allows cardholders to avoid late fees, but it results in carrying forward the remaining balance to the next billing cycle, incurring high-interest rates.
How to calculate the minimum amount due on your credit card?
The minimum amount due is usually set at 5% of the total outstanding balance, which is calculated on the date the statement is generated by most credit card issuers. This is the amount that you are required to pay before or on the due date of the payment.
For instance, your credit card company generates a credit card statementon the 26th of every month and the due date is on the 5th of every month.
So, if you have made purchases worth Rs. 10,000 before the 26th, your minimum amount due will be 5% of the total payable amount (Rs. 10,000) i.e., Rs. 500. You have to pay this amount on or before the 5th of the next month to avoid late fees.
If you pay the minimum due of Rs. 500, you will not be charged any late fee. However, the remaining outstanding amount of Rs. 9,500 will continue to attract interest at 3.99% per month.
Date of transaction | Amount (Rs.) | Comments |
July 20 | 5,000 | No interest or late fee is applicable. |
July 25 | 5,000 | No interest or late fee is applicable. |
July 26 | 10,000 | Your credit card statement is generated for Rs. 10,000. The minimum amount due is Rs. 500. |
August 5 | 500 | The minimum amount due is paid. The outstanding amount of Rs. 9,500 will incur interest at 3.99%. |
Benefits of paying the minimum due amount
- Helps you avoid a penalty and a late payment fee
- Helps you keep your credit card account active
- Lets you keep your credit score unaffected
- If you are in a financial crisis, you can use the card and manage your finances
Risk of paying only the minimum due amount
Credit cards apply interest on your outstanding balance every month. So if you pay only the minimum amount, your outstanding balance will remain high. The interest on the outstanding balance will accumulate month on month, making your debts higher. If you have the funds, it is better to clear thecredit card bill payment in full every month.
Conclusion
In summary, while paying the minimum amount due can help you avoid late fees and penalties, it is not advisable to do so unless you have no other option. Instead, it is better to pay the total amount due or as much as you can afford to avoid accumulating excessive interest charges and harming your credit score.
