Why Paying Minimum Dues on Your Card is a 'MAD' Idea

Credit cards are one of the biggest benefits to humans whenever they fall short of funds and look for emergency monetary support. Today, everyone is well aware of credit cards. Their benefits, utilization, and additional rewards are some of the reasons why people are more fascinated with using credit cards in India.

Using a credit card looks soothing, but the actual hurdle starts when you get the monthly bill. It includes the total overdue amount and a minimum due. Here is what both of them mean to the users:

Total Amount Due: The total due amount includes entire unbilled transactions done in the previous month added with any ongoing EMI and interest rates (GST charges).

NOTE: This simple definition doesn't consider any overdue amount of previous months.

Minimum Amount Due: A smaller amount you need to pay is the minimum due amount. It is a small portion of the total overdue amount.

You have the chance to either pay the total overdue amount or just the minimum due. However, before deciding, it's crucial to understand these terms and how they impact you from all aspects.

Before that, let's examine how the minimum due amount is calculated.

How Minimum Due Amount is Calculated?

The standard amount for minimum due is about 3-5 percent of the total outstanding bill. The minimum due amount can be either a fixed amount or a percentage of the total overdue amount, whichever is lower. It is simply the minimum amount that you need to pay to continue using your credit card hassle-free.

To get the exact count of how your minimum overdue amount is calculated, check out the Terms & Conditions in your monthly credit card statement.

Example of Credit Card Bill:

Suppose the credit card bill is generated on the 17th of every month with the last payment date as the 2nd of the following month. Assume that the minimum due amount of your credit card bill is 5% of the total amount.

Transaction Date	Nature of Spending	Amount Spent
25 May 2022	Online Purchase	Rs 5000
05 June 2022	Air Ticket	Rs 15000
20 June 2022	Total Amount Outstanding	Rs 20000
	Minimum Amount Due	Rs 2000

What are the Benefits of Paying Minimum Amount Due?

Every credit card has the facility to pay the minimum amount due, far lower than the total overdue amount. However, most of you would wonder what the benefits of paying a small portion of the total overdue bill are? Below are the advantages of paying the minimum amount due.

• Paying the minimum due amount saves you from getting a late payment penalty. It means if you skip paying the total amount and only pay the minimum amount due, you won't be charged with late payment. However, if you skip paying the minimum amount due, you will get a high penalty and late payment charges.
• Allows you to manage your funds if you cannot pay the entire bill amount and have other high-priority expenses.
• Prevents credit card providers from reporting your account as a defaulter or irregular.
• Save you from harming your credit score.
• Keep your card active till you continue paying the minimum due amount.
• You only need to pay the interest on overdue bills and save you from late payment charges.
• Save you from harming your credit score. Late payment of the due amount harms your credit score, making your financial journey hard.

The benefits will now fascinate every credit card holder only to pay the minimum due amount and enjoy using the card forever. This is one aspect of using a credit card.

It doesn't make sense if you only get the benefits of using a credit card. Lenders and banks also want to make money from it, so there is another aspect of using a credit card that you must know before paying the minimum amount due.

What are the Demerits of Paying the Minimum Amount Due?

Now you are fascinated to pay only 5 percent of the total overdue amount. It creates numerous other problems that you must know and address immediately.

Below are the demerits of paying the minimum amount due.

• Addon amounts to the coming month that put an additional burden for the coming months.
• With time, you must handle the overdue amount and repay it entirely.
• You are charged for the leftover amount, which adds further to the overdue amount and the current unbilled transactions.

Check out a simple example demonstrating how paying the minimum overdue becomes a problem in the coming months.

Transaction Date	Nature of Spending /Payment	Amount Spent
20 March 2022	Total Amount Due	Rs 20000
05 April 2022	Minimum Amount Due Paid	Rs 1000
05 April 2022	Outstanding Balance	Rs 19000
10 April 2022	Online Purchase	Rs 2000
15 April 2022	Purchase of a Mobile	Rs 15000
17 April 2022	Outstanding Balance	Rs 36,380*

In the table shown, on the 17th of April, the overdue balance is added to your current month’s credit bill. This results in a higher outstanding bill with a new minimum amount due.

The big challenge is that your outstanding amount from the previous month will be added with the interest rate that is different from one bank to another. Often the interest rate of credit cards is nearly 40-50 percent (annually) which is far more than a home loan, education loan, etc.

Additionally, the interest rate is calculated on the current month’s unbilled amount, which increases your credit card bill to a higher count.

When the total amount outstanding remains unpaid by the Pay by date, the outstanding balance and any new usage of the credit card are also charged interest. The interest rate continues to work until you pay the entire overdue amount and regain 100 percent of your credit usage limit.

Commonly you get three weeks to clear the dues that are far enough to manage the funds and get rid of monthly credit card expenses.

This gives you detailed knowledge of whether you should pay the minimum due amount or the entire bill amount.

Most of you would agree to pay the full bill before the due date to stay debt-free and safe from mental stress. Unfortunately, not everyone can manage the full bill amount bound to pay the minimum amount due.

Below are some practices you must follow to ensure you can pay, fill the overdue bill and start from zero every month.

Spend Wisely: The smart usage of your credit card is utterly incomparable to any other practice you find on the internet. You should restrict your credit card usage to a fixed count. If you make a habit of parking your card aside once the credit limit is reached, you will always be able to pay the total credit card bill and continue using it from scratch.

Save Credit Card Bill Amount: You know how much you can spend in a month. If you are using a credit card for all those transactions, keeping the exact amount saved in your savings is better. Keeping your credit card expenses safe in the bank will give you financial and mental freedom to use the amount you already have.

Using a credit card will provide numerous benefits that will help you take various other advantages. Before the due date, you can quickly pay the bill with the saved amount.

Lower Your Credit Card Limit: If you can’t control your expenses, the best way is to lower your credit card limit and stick to its usage. You won’t get a higher consumption limit with a low credit card limit. Hence, you will limit your credit card usage and make it easy to repay the dues before the due date.

These proven tips will help you make smart use of your credit card and stay prepared to pay the full due amount before the last payment date.

Now, you should also know some tips for using your credit card wisely.

Always Buy from Trusted Websites: You should always shop online from renowned and trusted websites like Amazon, Flipkart, etc. You should avoid using your credit card on untrusted websites as it can expose your card details to hackers.

Avoid Consuming 100% Credit Limit: Not many of you know that credit limit utilization also strongly impacts the credit score. You should never consume 100 percent of your credit limit. Instead, you should limit the usage to 20-30 percent of the total limit.

Always Track Your Spending: Smart people always keep track of their credit card usage. It helps them know the consumption limit and when they must stop using the credit card. Maintaining your financial future and avoiding any unusual transactions using your credit card is a good practice.

Know Your Rewards: A credit card gives you points you can redeem against numerous options. You can buy electronic items, vouchers, and even encash the reward points that the respective banks offer. You should always check your available reward points and how best you can use them.

That said, you have now learned why paying a minimum overdue amount is a MAD idea. You also learn how you can pay the entire bill on time without facing a financial crisis.