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What’s the Minimum Amount Due in credit card bills?
Posted on Wednesday, November 22nd, 2023 | By IndusInd Bank
Ever looked at your credit card bill and felt momentarily relieved seeing a small amount labeled “Minimum Amount Due”? While it may seem like a breather when you’re low on funds, there’s more to this figure than meets the eye. Let’s decode what the minimum amount due actually means, how it affects your finances, and how you can manage your payments wisely.
This is the smallest sum you need to pay to keep your credit card account in good standing. It’s usually a small percentage—often around 5%—of your total outstanding balance. While paying this amount can help you avoid penalties like late fees, it doesn’t clear your full dues. The remaining balance continues to attract interest, sometimes at high rates.
How to Calculate the Minimum Amount Due in Credit Card?
The calculation typically goes like this:
- Take 5% of your total outstanding balance.
- Add any EMI installments, past due amounts, or late fees, if applicable.
Let’s say your total bill is ₹30,000. Your minimum due might be around ₹1,500 (5% of ₹30,000). But if you had an EMI of ₹500 and a past due amount of ₹300, then your minimum due would be ₹2,300.
Why is it Important?
Avoiding Late Fees
Timely payment of the minimum amount due prevents incurring late fees, safeguarding your financial standing. Late payments not only trigger financial penalties but can adversely impact your credit score.
Credit Score Impact
Paying only the minimum may avert immediate penalties, but carrying forward a balance incurs interest, which will lead to potentially harming your credit score over time if not paid on time.
Interest Accumulation
Credit cards often bear high-interest rates; paying only the minimum exposes you to considerable interest charges. This can lead to a snowball effect, significantly increasing your overall debt.
Tips for Managing Credit Card Bills
Pay More than the Minimum Due
Strive to exceed the minimum amount due whenever feasible. This not only diminishes overall interest but expedites debt repayment.
Budget Wisely
Establish a comprehensive budget to manage expenses effectively. This not only helps prevent debt accumulation but also enables you to comfortably surpass the minimum payment.
Understand Terms and Conditions
Familiarize yourself with your credit card’s terms, especially regarding interest rates and fees. This knowledge empowers informed financial decisions.
Wrapping Up: Smart Spending, Smarter Repayment
While the minimum amount due might appear as a safety net, relying on it regularly can cost you a lot more in the long run. Use it only when necessary, and aim to clear your entire balance whenever possible. Responsible credit card usage not only keeps your debt in check but also boosts your financial credibility over time.
