Everyone can agree that credit cards are a convenient way to access instant funds or make payments without worrying about paying the purchase cost on the spot. The credit card minimum due option also adds to the benefits of owning a card. 

After making purchases through your card, you get a credit card bill at the end of the billing cycle. In this bill, the issuer will mention a minimum due that you need to pay before the due date. But what does minimum due mean, and what happens when you choose to go ahead with this route? 

Understanding The Minimum Due in Credit Card Bills and Its Calculation

The minimum due amount in credit card is a percentage of the total outstanding amount. When you receive your bill, you must clear at least this amount by the due date set by the issuer. This is essential to maintaining your credit card account and preventing other additional charges from piling up.

Here’s how issuers compute this amount:

• Most issuers set the minimum due at around 5% of the total outstanding balance reflected in the statement
• The minimum due may include additional charges such as interest or unpaid dues from previous bills
• The exact percentage varies with different credit card issuers and their policies

Check out this example to understand the calculation:

• An issuer generates your credit card bill on the 28th of each month with a payment deadline of the 5th of the following month
• If your total bill amounts to ₹20,000, then your minimum due will be ₹1,000, which is 5% of the bill
• If you pay this amount by the 5th, no late payment charges will apply to the total bill
• However, interest will apply to the remaining balance of ₹19,000 at an interest rate decided by the issuer until you settle the entire bill

Pros of Paying the Minimum Due

Here are some benefits of paying the credit card minimum due:

Helps Manage Finances During a Cash Crunch

Paying the minimum due can provide great relief if you’re experiencing financial constraints. By meeting this minimum repayment requirement, you can avoid defaulting on your credit card debt and avoid paying the full dues for the time being. 

Aids in Safeguarding Your Credit Score

Clearing the minimum balance of your total bill also aids you in maintaining your credit score as you don’t default on a payment. However, don’t make paying the minimum due into a habit. Doing so can add to your outstanding amount, which only makes it harder to repay down the line. 

Helps Avoid Late Payment Charges

Paying the minimum amount by the due date set by the issuer also ensures you avoid incurring late payment fees or penalties. The issuer levies these charges when you don’t make part or full payment of your bill at the due date. 

You avoid these additional expenses and maintain financial stability by paying at least the minimum amount on time.

Cons of Paying the Minimum Due

Clearing only the credit card minimum due comes with these limitations:

Accumulation of Interest Charges

While the issuer will not levy any late payment charges, the interest is applied on the balance amount and it keeps building up on what you owe. This means that you may end up paying a lot more as interest over time. This increases your total outstanding and can deplete your savings.

No Interest-Free Period 

When you pay only the minimum due, the issuer will not offer any interest-free period for the next cycle. So, your transactions from the next month onward will attract interest from the first day onwards. This will increase your outstanding dues and make it harder to stick to a budget.

Risk of Falling into a Debt Trap

Paying just the minimum amount on your credit card might seem like a manageable option in the short term. However, in the long term, it may not be a suitable choice as the interest is levied on a cumulative basis. So, your total due will keep on increasing, making repayment difficult and possibly leading you into a debt cycle.

Paying the minimum due can be helpful during a financial crisis, but you should try to pay the bill in full as much as possible. If you’re looking for a card that is easy on your pocket, consider getting the One Credit Card. You don’t need to pay any joining or annual renewal charges and there are no hidden charges either.

You can apply for credit card and get various other exciting perks, such as deals on shopping and dining, up to 5X rewards on top two spend categories and the facility to convert large purchases into easily manageable instalments. Apply now in just a few clicks.