The popularity of credit cards is constantly rising due to their various benefits. Credit cards allow cardholders to buy goods and services offline and online, helping them manage their finances effortlessly. But they come with certain credit limits, so you must pay the credit card bills on time to utilise that limit regularly.
However, if you have budget constraints and cannot pay the total bill, you can prefer to pay the minimum credit card due. Otherwise, you may have to pay interest charges and other penalties.
What is the minimum payment due?
The credit card minimum payment due refers to a small amount of the outstanding bill. The amount must be paid if the cardholder cannot pay the whole amount at once. The credit cardholder must pay the amount every month before the due date. Otherwise, the bank can impose extra charges as a penalty.
So, paying the minimum amount due in a credit card bill beforehand is always better. Your bank will calculate the amount based on your credit card bill and send it to you. You should check it before making the payment.
Remember, the charges and penalties for late payment may vary from bank to bank. So, before applying for a credit card, check all the details.
How you can calculate the minimum due on credit cards?
The minimum due on a credit card is generally calculated as 5% of your total outstanding balance. Enabling the EMI balance transfer option or converting the purchases to EMI can also add to your minimum amount due. Furthermore, if there is any unpaid amount from your past credit card bill, your bank will add it to the current month's due.
For example - your bank generates a credit card statement on the 18th of each month, and the due date is the 6th of the following month. If a cardholder buys things worth Rs. 10,000 before the 18th of the month, the minimum amount payable will be 5% of 10,000, which is Rs. 500. So whenever the cardholder will receive the bill, they will have to pay at least Rs. 500 to avoid any penalties.
If the cardholder fails to do so, they must pay interest between 3% and 4% each month on their remaining outstanding bill. However, paying the total amount at once is always advisable to avoid all the hectic calculations and extra charges.
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Advantages of paying the minimum amount due on credit cards
Paying your minimum credit card due amount is crucial to avoiding future adverse situations. Apart from that, you can get the following benefits if you do so.
- When you make your credit card's minimum payment, you can keep your card active. It simply means you can continue getting services or using a credit card for the available credit limit.
- You can ignore paying the extra charges and penalties as late payment fees.
- Besides this, your bank will not categorise your payment as a 'default' in your credit record. So, you can rest assured that this will not harm your credit score to a great extent.
- Since you will get to use your credit card, you can easily manage your finances.
- Your bank will never suspend your credit card if you make a credit card minimum due amount.
What are the risks associated with the credit cards amount due?
Now that you know what is minimum due on credit cards and its benefits, it is time to learn what risks it may impose on your credit cards. Paying the credit card minimum due may help keep your credit card active. But you are on the wrong path if you think it will reduce your credit debt. It only enables you to handle your current financial crisis, which you can do monthly.
But your credit card debt will increase over time if you ever make it a habit. Therefore, paying the amount in full is always better to enjoy the interest-free credit period. However, if you do not do it, you may encounter the following consequences.
- Even if you pay the minimum amount every month, the remaining balance will continue. So, you must pay additional charges, like interest rates, on that specific amount.
- With the passing months, the minimum amount will increase with your remaining balance. It will happen as the previous month's balance will be added to the current month's balance.
- As the interest charges increase, it may take you more time to clear all your credit card debt. So, it is recommended to check the amount you need to pay if you decide only to pay the minimum due amount.
- The worst part of paying only the minimum amount is that your credit limit will be reduced. It means you may not be able to use your credit card to its full potential.
- When you make purchases using credit cards, your credit increases, resulting in an increased credit utilisation ratio. It will significantly harm your credit score. As a result, you may face difficulties in approval when applying for any loan.
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Conclusion
It is imperative to note that paying the minimum due amount on credit cards is acceptable when you suffer from a fund shortage. But, it can help you only for a short period of time. If you make it a regular thing, it may put you at high risk financially.
So, try to pay the full amount every month to avoid worse situations. Even if you frequently find yourself in this situation, carefully plan your budget and expenses. Otherwise, it will only increase your debt and won't allow you to enjoy the benefits and rewards freely.
If you are looking for a credit card but don’t have a credit score or income proof, you can apply for a Kotak 811 Dream Different Credit Card. It is a lifetime-free credit card you can get by booking a Fixed Deposit of Rs 5,000 with Kotak Mahindra Bank.
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