Over the last few years, usage of cashless payment facilities in India has grown by leaps and bounds. Now, almost all grocery stores accept mobile wallets or UPI app payments. Alongside, there has been a steady rise of credit card and debit card users as well. When it comes to credit cards, the biggest advantage that you get is that you aren’t paying the entire amount right away. The bank pays the desired amount for you, and then you repay the bank according to the limits in place. Therefore, credit cards can be quite convenient when you think of it.
However, credit cards have their limits as well. You need to pay your credit card statement at the end of every month. Otherwise, you run the risk of defaulting on your payment. This in turn, will affect your credit score and a variety of other factors. To avoid all such problems, paying back the minimum due in credit card is always the best solution.
What is minimum due in credit card?
The term ‘what is minimum amount due in credit card’ can be quite a common one. After all, every credit card bank statement has the term written on it. Credit cards are all about increasing convenience for the user and paying the term from the lender’s side. However, many times, people end up overspending their credit cards. In such a scenario, people might not be able to pay the amount that they owe to the bank.
What can be done? That’s where the concept of minimum due in credit card comes in. It gives the credit card user an opportunity to pay back at least some of his owed amount. Therefore, minimum due in credit card is quite a useful feature, for both the bank and the customer. It helps the bank to ensure the credit card amount is paid back. On the other hand, the customer is able to reduce their debts to the bank, by paying back in smaller amounts.
Regardless, it should be noted that consistently paying only the minimum amount due can invite trouble. The customer may end up getting into a debt trap, which should always be avoided at all costs.
The minimum amount due is set at 5% of the total amount. In addition, any amount from previous billing cycles that you haven’t paid will also be added to the amount. In case you have converted a credit card payment into EMI, then that amount is also added.
Benefits of paying the minimum due in credit card
Here are some benefits of paying the minimum amount:
- When you pay the amount back regularly, your credit card stays active. You can still use it to make transactions.
- Your payments won’t be classified by the bank as ‘default’. Therefore, there will be no effect on your credit score.
- Furthermore, you do not have to pay any sort of late fee.
What happens if I do not pay minimum due in credit card?
It is natural that you may be running low on funds at times. In such a case, you might ponder over the fact that you should not pay the minimum due in credit card for the month. However attractive it may seem; you should never take such a step. Here are some actions that the bank may take if you default on your payments:
- The bank will impose further late charge fees.
- It may also increase your rate of interest.
- If you keep missing out on regular payments, your credit card will probably be suspended. You won’t be able to make transactions with it anymore.
- Your credit score will be badly affected. It may take you a long time before you are eligible for a credit card or a loan once again.
Why is only paying back the credit card minimum due limit considered risky?
As mentioned above, it can land you in a debt trap. Here’s a bit more into why you should try to avoid it as much as possible:
- By paying the minimum amount, you end up carrying the rest of the payment forward. Therefore, you will be charged interest on that.
- You end up reducing the available credit limit.
- On an annual basis, credit card interest rates can vary between 30-40%.
These are only some of the reasons that make paying only minimum due balance at the end of each month, a bad idea.
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