Credit Card minimum amount due: Meaning, calculation and importance

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It's the end of the month, and you're sifting through your bills when you spot your Credit Card statement. The minimum amount due catches your eye - a figure that seems like a quick fix to your immediate financial strain. But have you ever stopped to think about what truly lies behind this option and how it affects your financial health?

This blog is set to unravel the concept and importance of the minimum amount due in Credit Card statement. We'll dive into its calculation, uncover the hidden implications of consistently choosing this path, and reveal how it can shape your financial future. You have the power to manage your Credit Card smartly, ensuring that your decisions align with your long-term financial well-being.

Meaning of minimum amount due in Credit Card

Understanding the minimum payment in a Credit Card is crucial to maintaining a healthy credit profile. It represents the least amount you can pay to sidestep late charges and ensure your account remains favourable with the lender. This sum is usually determined as a fraction of your entire outstanding balance, inclusive of any accumulated interest and applicable fees. Recognising the importance of paying the credit card minimum due is indispensable, as it not only helps you evade penalties but also secures your credit standing, acting as a foundational step in your broader financial management strategy.

Let's consider a small example for clarity. Suppose you have a Credit Card with an outstanding balance of ₹10,000. Your Credit Card company requires a Credit Card minimum payment of 2% of the outstanding balance. So, your minimum payment due would be 2% of ₹10,000, which amounts to ₹200. However, this doesn't mean the rest of your balance disappears. The remaining ₹9,800 will carry over to the next billing cycle and will accrue interest as per the card's terms. By understanding this, you can better manage your payments, ensuring that you avoid unnecessary fees while keeping your credit score healthy.

Calculate the minimum amount due on your Credit Card

Understanding how to calculate Credit Card minimum due is vital for effective financial management. The minimum due is typically calculated as a percentage of your total outstanding balance, along with any applicable fees or charges. Here's an expanded table that illustrates various scenarios:

Note:The above table is an illustrative example. The actual calculation may vary based on your Credit Card's terms and conditions.

Benefits of paying the minimum amount due on Credit Cards

Paying the minimum amount due on a Credit Card might seem like a small step, but it holds significant benefits, especially in managing your financial health and credit standing. Here’s a more detailed look:

• Avoids late payment penalties: By paying the Credit Card minimum balance, you avoid hefty late payment fees. These fees can quickly accumulate and increase your financial burden.
• Maintains your account in good standing: Consistently paying the minimum due ensures your account status remains positive. This is crucial for maintaining a healthy relationship with your Credit Card issuer.
• Prevents negative impact on credit score: Late payments or missed payments can severely impact your credit score. Paying the minimum due helps safeguard your credit score from such negative influences.
• Facilitates credit utilisation management: By keeping your account in good standing, you manage your credit utilisation ratio better, which is a key factor in determining your credit score.

Risk of paying the minimum amount due

While paying the minimum amount due on a Credit Card can be a temporary relief, it's crucial to understand the risks associated with this practice. Paying just the minimum due can lead to several financial challenges.

• Increased interest charges: One of the most significant risks is the accumulation of interest. Credit Cards generally have high-interest rates, and by paying only the minimum, most of your payment goes towards the interest rather than reducing the principal amount. Over time, this can result in you paying much more than the original amount borrowed.
• Extended debt period: When you pay just the Credit Card min amount due, you're essentially extending the period it takes to pay off your debt. This prolonged debt can become a long-term financial burden, making achieving your other financial goals difficult.
• Higher credit utilisation ratio: Continuously carrying a high balance on your Credit Card increases your credit utilisation ratio, which is a key factor in determining your credit score. A high credit utilisation ratio can negatively impact your credit score.
• Reduced creditworthiness: If your debt continues to grow over time, it can affect your creditworthiness. Lenders and financial institutions may view you as a high-risk borrower, which can make it difficult to obtain loans or other credit lines in the future.

Also Read: Understanding Credit Card billing cycle

Conclusion

Understanding the nuances of Credit Card payments, especially the implications of paying the minimum amount due, is an essential skill in today's financial landscape. You can release yourself from the grip of debt by paying more than the minimum. And if you're seeking to combine savvy financial habits with rewarding experiences, Axis Bank Credit Cards emerge as a compelling choice. Axis Bank Credit Cards cater to the needs of a contemporary lifestyle with impressive discounts, and also offer a plethora of benefits that complement your spending patterns.

FAQs

Q: What is the minimum amount due on a Credit Card statement?

A: The minimum amount due on a Credit Card statement is the smallest amount you can pay by the due date to avoid late fees and keep your account in good standing. It's a fraction of your total outstanding balance.

Q: What happens if you only pay the minimum amount due on a Credit Card?

A: Paying only the minimum amount due leads to prolonged debt due to accumulated interest and a higher credit utilisation ratio and can result in paying significantly more over time due to interest and fees.

Q: What happens if I do not pay the Credit Card bill before the due date?

A: Not paying the Credit Card bill before the due date can incur late payment fees and additional interest charges and negatively impact your credit score, which may affect future credit opportunities.

Q: Does paying the minimum due affect your credit score?

A: Paying only the minimum due can affect your credit score over time, primarily by increasing your credit utilisation ratio, which is a key factor in credit scoring models.

Q: What is the difference between minimum due and total due?

A: The minimum due is the lowest amount you can pay to avoid penalties, while the total due is the full amount you owe on your Credit Card, including purchases, interest, and fees.

Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.