Understanding the credit card minimum due is crucial for managing your finances well. With credit card transaction value nearing ₹2 Billion each month, it is indicative that more people are choosing them for everyday transactions.
If you are new to credit cards, know that paying the total outstanding is the best solution. Wondering what if you fall short on funds? There’s no need to stress; you can pay the minimum amount due in such instances.
Remember, paying just the minimum due has its downsides that you need to be aware of. By knowing the pros and cons of paying a minimum balance, you can weigh the consequences better.
Minimum Amount Due: A Brief Overview
What happens if I pay the minimum due on a credit card? This must be a common question occurring in your mind. Well, the answer is simple. Paying just the minimum due helps you avoid late payment charges and other penalties. Here’s all you need to know about the credit card minimum due:
- It is a small portion of the total outstanding balance at the end of the billing cycle.
- Some credit card issuers also charge a fixed sum to pay against your credit card balance.
- Typically, it is 5% of the total amount due on a credit card, which could be higher if there’s an unpaid amount or an EMI.
- Paying this amount within the predetermined due date keeps your credit card account in good standing with the issuer.
- Remember, if your total amount due is less than the minimum due amount, you’ll only have to pay the former.
- Hence, reviewing this amount is crucial before applying for a credit card online, as it varies depending on the issuer.
Minimum Amount Due Calculations: Know More
To know the credit card minimum due all you hve to do is check your monthly billing statement. It provides details pertaining to both the total and minimum amount due on your credit card bill. As mentioned earlier, the latter is calculated as a small portion of the former.
This percentage can vary depending on which credit card company you choose. Consider this example to understand how issuers calculate the minimum amount due on credit cards:
- Say an issuer charges 5% of the total outstanding balance as the minimum amount due on a credit card.
- If your total outstanding balance is ₹10,000, the minimum balance will be 5% of this amount.
- It will translate to ₹10,000 X 0.05, i.e., ₹500. However, in case of a rolling balance or an unpaid EMI, this amount will also be added to your minimum due.
- Finance charges, such as APR, will also apply if there’s a carried forward balance on a credit card from the previous billing cycle.
- Failing to pay this amount in time will further accrue interest, making it more challenging for you to clear your dues.
Paying the Minimum Due Amount: Why is it Crucial?
If you are wondering, ‘Why is it essential to pay at least the minimum due,’ this is what you must know. Remember, this helps avoid various negative consequences and maintain good financial health.
Here are some of the key reasons why it is imperative to clear your minimum due amount:
Saves from Late Charges
You’ll have to pay late payment fees if you fail to pay the credit card minimum due within the predetermined due date. This fee varies depending on the issuer’s policies and the outstanding balance.
You can easily avoid this additional financial burden by paying your credit card bills on time. Note that it can range between several hundred to several thousand rupees.
That said, if you keep paying the minimum due only, it will take you forever to clear the debt. So, it’s ideal to clear your credit card bills on time and in full to reduce your borrowing costs.
Maintains a Good Credit Score
A credit score is a three-digit number that represents your creditworthiness. It also helps the lender decide whether to extend a loan to a particular applicant. Timely payments ensure that you can maintain good standing with the credit card issuer and keep a positive credit history.
Your credit card issuer will inform the credit bureau each time you fail to pay the bill on time. This will have an adverse impact on your credit score, making it challenging for you to get a loan in the future.
Making a credit card minimum due payment and postponing the rest will only mean that your interest charges will rise. Thus, you need to balance it out properly if you want to use credit cards responsibly.
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