What is the Minimum Amount Due on a Credit Card?

The minimum amount due allows you to pay the minimum amount for your entire credit card bill. Paying just the minimum due may seem tempting during times of financial constraint strain. However, understanding the true implications of this choice is crucial for responsible credit card management and long-term financial well-being.

Read on to learn more about ‘minimum credit card payment’, its pros and cons, and how clearing only the minimum due affects your credit. Scroll down!

What is the Minimum Credit Card Payment Due?

The minimum payment on a credit card bill is the smallest amount you can pay to keep using the card. It is a small percentage of your total billed statement. You can choose to use this option if you are unable to pay the full amount due at once. If you pay the minimum due amount, it won’t appear as a non-payment on your credit report.

However, it is important to note that the lender will report your credit utilisation. Since you did not pay your whole bill, your credit utilisation will be on the higher side.

Also Read: Evolution of Credit Card in India: A Journey

5 Benefits of Paying Minimum Amount Due

Following are some of the most essential advantages you need to keep in mind when paying the minimum credit card payment every month:

1. Maintains an Active and Operable Account

By meeting the minimum payment requirement before the due date, your credit card remains active, ensuring continued access to its benefits and services.

2. Partial Principal Repayment

When you make the minimum payment, you are paying a certain portion of principal amount owed. This action helps manage interest accrual, ensuring you stay on track with repayment obligations.

3. Avoidance of Penalty Charges

Financial institutions typically waive penalty fees and late payment charges when the minimum amount due is paid on time. It allows borrowers relief from additional financial burdens.

4. Prevents Negative Credit Reporting

Consistently meeting the minimum payment threshold prevents irregular bill payment reports to credit bureaus. This proactive approach safeguards your credit score from potential damage due to payment delinquency.

5. Preservation of Credit Score

Timely minimum payments contribute to maintaining or even improving your credit score, as they reflect responsible credit management to lending institutions and credit bureaus.

Disadvantages of Paying Minimum Amount Due

While paying the minimum amount due on your credit card statement can offer temporary relief during a financial crunch, but crucial to recognise its potential drawbacks. Here are some disadvantages of minimum credit card payment:

• Interest on Outstanding Balance: When you pay the minimum amount, the lender will charge interest on the outstanding balance. This is not applicable if you pay your dues in full.
• No Interest-free Credit Period: Paying only the Minimum Amount Due (MAD) instead of the full credit card outstanding forfeits any interest-free credit period. Instead, interest accrues from the purchase date.
• Higher Interest Rate: The interest charged on credit cards usually tends to be on the higher side.
• Significant Accumulated Debt: If you continue to pay just the minimum amount due, your total accumulated debt will increase, and it will become difficult for you to pay off.

Paying the minimum due every month will lead to an increase in the amount of interest accumulated. This accumulated debt will lead to paying more than the amount you owe.

Also Read - Top 7 Advantages of Having High CIBIL Score Value

How Does Minimum Due Affect Credit Score?

Paying the minimum amount due on your credit card before the due date exempts you from late payment fees. However, it is worth noting that interest at a pre-decided rate will apply to your outstanding credit account balance. Here are some of the ways paying only the minimum due will affect your credit score:

• Rising Credit Utilisation

If you have been paying the minimum amount due for quite some time, your credit utilisation is going to increase gradually. It will impact your credit score if your credit utilisation ratio is more than 30%, so it is crucial to ensure that your credit utilisation does not exceed this limit. It is applicable even when you can only pay this minimum amount due to a difficult financial situation.

• Credit History and Perception

The credit repayment behaviour is a critical aspect of your credit score because minimum dues affect your credit history. Creditors prefer borrowers who consistently pay more than the minimum, demonstrating responsible credit management.

• Accumulating Interest

Interest will continue accumulating on your outstanding balance causing delay or default in repayment. This, in turn, may further impact your credit score. 

To Conclude

Paying minimum credit card payments may seem a better option in the short term. However, keep in mind that paying less will increase the amount of accumulated interest and fees. Reserve this option for financial emergencies when full payment of your credit card bills is not feasible due to insufficient funds.

Frequently Asked Questions

1. Will paying only the minimum amount due hurt my credit score?

Yes, consistently paying only the minimum amount can negatively impact your credit score. Minimum payments typically cover a small portion of the balance, leading to a high credit ratio, which in turn negatively affects your credit score.

2. Will I be penalised for only paying the minimum amount due on my RuPay credit card?

No, as long as you make the minimum payment by the due date, you will avoid late fees against your RuPay credit card. However, interest will continue to accrue on the remaining balance.

3. What can I do to minimise the negative impact of paying only the minimum amount due?

To minimise the negative impact of paying only the minimum amount due, you need to pay more than the minimum, pay in full or set up autopay.

Disclaimer

We take utmost care to provide information based on internal data and reliable sources. However, this article and associated web pages provide generic information for reference purposes only. Readers must make an informed decision by reviewing the products offered and the terms and conditions. Loan disbursal is at the sole discretion of Poonawalla Fincorp.
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