When you receive a credit card bill, you have the option to pay two amounts. One is the total outstanding amount and the other is the minimum amount due. If you are short of cash there is a tendency to pay the minimum amount due on credit card.
But this has a limited benefit. If you are in the habit of doing this regularly, your credit card bill could see a spiralling. Read on to know more.
What is ‘minimum amount due’?
- The minimum amount due is 5% of the total outstanding amount.
- If you have converted any payment on your card to EMI, that amount is also added to the minimum amount.
- Any unpaid balance from the previous billing cycle is also added to the minimum amount
The benefit of paying the minimum amount
- By paying the minimum amount, you can keep your credit active, i.e. you can continue to use the card for the total available credit limit (barring the amount converted to EMI)
- Besides, the bank will not classify your payment as a ‘default’ in the credit record if you pay the minimum amount due. This will ensure that your credit score is protected.
- You can avoid late payment fee
[Also Read: Credit Card EMIs or Personal Loan: Which is a better option?]
Risk of paying the minimum amount
- When you pay the minimum amount the rest of the balance gets carried forward and interest is charged on that amount
- The minimum amount increases for every month that you delay full payment, as the balance amount of one month is added to the minimum amount of the next month
- Credit card interest rate ranges from 35-40% on an annual basis.It is calculated daily on the outstanding amount, i.e. the unpaid amount. You can use Axis Bank's EMI calculator to know more.
- The interest is charged from the date of the purchase, and not the end of the billing cycle. Hence, every time you pay only the minimum balance you incur interest charge on that amount from day one and effectively lose out on the benefit of
the credit-free period.
- Your available credit limit is reduced to the extent of amount not repaid. Hence, you may not be able to swipe your credit card as per your needs.
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.
