By understanding the concept of minimum due on credit cards, you can avoid penalty charges related to payment failure on the due date. Credit cards are becoming more popular for various reasons like the availability of funds during cash crunch. However, it is crucial that you pay bills on time to continue using them.
However, sometimes it’s hard to pay the complete bill in one go. During a financial crunch, you can pay the minimum amount of your credit card bill. You can make a well-rounded decision by having more knowledge of the minimum due and the implications of choosing such a path.
Understanding the Concept of Minimum Due
It represents the smallest percentage of your credit card bill that you can pay to avoid penalties such as late payment fees. Generally, it is 5% of the total billing amount. You can pay the late payment penalty on your due bill by paying the amount.
How Does it Work
The minimum amount of your credit card bill to pay varies depending on the credit card provider and the type of card you hold. Some credit card providers have a set limit related to a minimum amount, and others consider 5%. To understand this, consider this example.
Say your outstanding bill is ₹30,000 and the issuer changes 10% of the bill as the minimum due. Then, paying at least ₹1,500 will help you avoid the late payment penalty. To know this amount, you can also look into your bill statement generated at the end of your billing cycle. The total bill and minimum amount to pay are in bold on your billing statement.
Even if you choose to pay the bill only up to the minimum, it is essential to pay on time. For that, you can better know how the billing cycle works. The billing cycle typically lasts 30 days, from the last payment statement to the recent closing date. The bill is generated on the closing date.
Depending on the credit card provider, you get 15-20 days of buffer time to pay your outstanding bill. You can pay in full or pay the minimum amount of your bill before the due date.
Pros and Cons
While paying the minimum amount of your credit card bills can benefit you in numerous ways, it has a few negative impacts. Here are all the things you should know before choosing between the minimum due or full payment.
Maintaining credit score: Issuers inform bureaus of late payments and payment failures. This affects your credit score negatively. A bad credit score will impact your chances of getting loans in future.
Paying the minimum amount is crucial to maintaining good credit history. This small amount indicates that you intend to pay the rest of the amount soon. This shows positive credit behaviour and avoids damage to the credit score.
Avoiding penalties: Failing to pay bills on the due date attracts penalties and adds ups to the outstanding amount with interest. You can avoid hefty penalties like late payment fees by paying your credit card bill’s minimum due amount.
Managing CUR: With minimum due payment, you can avoid debt accumulation and your credit limit reduces by this amount. This helps to maintain a better credit utilisation ratio than not paying the minimum at all.
In addition to this, there are a few negative impacts of paying a minimum due. For one, the remaining amount of your bill carries forward to the next month and can attract high interest rates. As a result, you ended up paying more than you owed at the start to the issuer.
It can also be a financial burden in the long run, as the continues to grow the longer the balance is carried forward. If you are unable to pay it in the next cycle, this can continue to spiral and increases your debt. It can also deteriorate your creditworthiness, as paying only the minimum shows your dependency on credit.
So, paying the minimum due can be a good option during a financial crunch, but making it a habit can increase the risk of numerous financial difficulties. By comparing the benefits and drawbacks, you can pay the minimum due on credit cards to align with your financial needs.
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