How Minimum Due Payments Work
On your credit card bill, you will find two amounts: the total due and the minimum due. The minimum due might seem low and affordable, so some credit card users opt to pay only this. It may seem like a good choice, particularly if you are cash-strapped.
But minimum due payments can result in higher fees. Although this can help you avoid late fees in the short run, it will increase your credit card debt over time. Here, you can find out how minimum due payments work, the consequences of making them, and how to be a smarter credit card user.
What is Minimum Due Payment?
Minimum due is the smallest payment that you can make on your credit card bill without incurring a late fee. Your card account will be maintained and considered by the bank as being “in good standing”.
If your credit card bill is ₹15,000 and your minimum due is ₹750, paying ₹750 will be considered a payment. But, you still owe ₹14,250 that will be rolled over to the next month. The minimum due will typically be indicated on your credit card statement, bank app, and in the SMS and emails you receive from your bank.
How Minimum Due is Calculated
Minimum due is not an arbitrary amount. It is generally a certain percentage of your outstanding amount, which can vary from 5% to 10%. This percentage, along with interest charges, late fees, and EMI instalments, is added together.
For example, if you owe a total of ₹20,000, 5% of this would be ₹1,000. If you have other charges, such as ₹200 in interest charges and an EMI of ₹500, then your minimum due will be ₹1,700. Since your monthly expenses, interest, and other fees will fluctuate, your minimum due would also be different from month to month.
What Happens When You Pay Only the Minimum Due
There are some short and long-term consequences of paying just the minimum due. Immediately, it prevents you from paying late payment fees and avoids damaging your payment record. This is recognised by your bank as a timely payment. But the outstanding amount doesn’t go away. This amount will be carried to the following month, and interest will be applied. Moreover, you forgo the grace period that is commonly associated with credit cards. This could result in interest being charged on new purchases from the date of purchase. This can add up over time and accumulate the debt.
Interest Charges Explained
The most crucial thing to consider with minimum due payments is interest charges. The interest rate charged on credit cards is high, ranging from 30% to 45% per annum. And the calculations are done daily.
Let’s say you have a bill of ₹10,000, and you pay just the minimum (say ₹500) that is due, then the remaining ₹9,500 will attract interest every day. Over time, this interest continues to accumulate, and in the following month, you might have to pay interest on the interest, too. This is how credit card debt can quickly spiral out of control.
Pros of Paying Minimum Due
- Helps avoid late payment penalties
- Keeps the credit card account active
- Protects payment history
- Useful in short-term financial emergencies
Cons of Paying Minimum Due
- High interest charges
- Debt reduces very slowly
- Total repayment becomes expensive
- Risk of falling into a debt cycle
- Financial stress increases over time
Minimum Due vs Total Amount Due
| Factor | Minimum Due | Total Due |
| Payment size | Small | Full |
| Interest | High | Zero |
| Debt level | Increases | Ends |
| Financial control | Weak | Strong |
Impact on Your Credit Score
Making minimum payments won’t directly affect your credit score as you’re paying on time. But it can have long-term indirect impacts. By not paying your credit card off in full, you raise your credit utilization ratio. This means you are using up a larger part of your credit limit, and it may indicate to lenders that you are using (or overusing) credit. This could impact your credit score in the long run and make it harder for you to obtain loans or credit offers.
When is It Okay to Pay Minimum Due
It’s okay to pay the minimum due in certain circumstances. Such as in the case of a crisis or temporary loss of income, or unforeseen expenses, when you need temporary assistance. But it’s best to use it sparingly. It’s best to repay the remaining balance as quickly as you can and not use it often. It’s okay to use this feature at times, but using it frequently may cause financial stress.
Real-Life Scenario
Let’s take an example of a user who has a credit card bill of ₹30,000 and pays only the minimum amount every month. As they are paying regularly, interest continues to accrue on the outstanding amount. As a result, the remaining balance decreases very gradually, and the user pays a lot more than ₹30,000. This can be frustrating and can result in a debt trap.
Conclusion
Minimum due payments are meant to be an option, but should be used sparingly. They will keep you out of trouble in the short term, but can cost you more in the long run. Ideally, you should pay the full amount on your credit cards. If not, pay as much as you can, but more than the minimum amount to minimise interest. By using credit cards wisely, you can enjoy their benefits without worrying. Ultimately, being savvy today will help you avoid financial issues tomorrow.
